California | 95-2211612 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
4484 Wilshire Boulevard, Los Angeles, California | 90010 | |
(Address of principal executive offices) | (Zip Code) |
Title of Each Class | Name of Each Exchange on Which Registered | |
Common Stock | New York Stock Exchange |
Large accelerated filer | x | Accelerated filer | ¨ | |
Non-accelerated filer | ¨ | (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Emerging growth company | o |
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Item 1A | ||
Item 1B | ||
Item 2 | ||
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Item 6 | ||
Item 7 | ||
Item 7A | ||
Item 8 | ||
Item 9 | ||
Item 9A | ||
Item 9B | ||
Item 10 | ||
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Item 12 | ||
Item 13 | ||
Item 14 | ||
Item 15 | ||
Item 1. | Business |
Private Passenger Automobile | Homeowners | Commercial Automobile | Other Lines | Total | ||||||||||||||||||
California | $ | 2,117,882 | $ | 404,645 | $ | 102,204 | $ | 109,779 | $ | 2,734,510 | 84.1 | % | ||||||||||
Florida (1) | 140,288 | 4 | 17,089 | 680 | 158,061 | 4.9 | % | |||||||||||||||
Other states (2) | 221,871 | 65,269 | 58,939 | 10,282 | 356,361 | 11.0 | % | |||||||||||||||
Total | $ | 2,480,041 | $ | 469,918 | $ | 178,232 | $ | 120,741 | $ | 3,248,932 | 100.0 | % | ||||||||||
76.3 | % | 14.5 | % | 5.5 | % | 3.7 | % | 100.0 | % |
Private Passenger Automobile | Homeowners | Commercial Automobile | Other Lines | Total | ||||||||||||||||||
California | $ | 2,059,459 | $ | 369,407 | $ | 86,981 | $ | 104,854 | $ | 2,620,701 | 82.6 | % | ||||||||||
Florida (1) | 154,593 | 9 | 24,973 | 1,067 | 180,642 | 5.7 | % | |||||||||||||||
Other states (2) | 238,651 | 67,481 | 54,112 | 10,310 | 370,554 | 11.7 | % | |||||||||||||||
Total | $ | 2,452,703 | $ | 436,897 | $ | 166,066 | $ | 116,231 | $ | 3,171,897 | 100.0 | % | ||||||||||
77.3 | % | 13.8 | % | 5.2 | % | 3.7 | % | 100.0 | % |
Private Passenger Automobile | Homeowners | Commercial Automobile | Other Lines | Total | ||||||||||||||||||
California | $ | 1,946,922 | $ | 333,397 | $ | 78,735 | $ | 96,791 | $ | 2,455,845 | 81.5 | % | ||||||||||
Florida (1) | 153,206 | 9 | 27,281 | 738 | 181,234 | 6.0 | % | |||||||||||||||
Other states (2) | 245,645 | 68,843 | 47,495 | 13,834 | 375,817 | 12.5 | % | |||||||||||||||
Total | $ | 2,345,773 | $ | 402,249 | $ | 153,511 | $ | 111,363 | $ | 3,012,896 | 100.0 | % | ||||||||||
77.9 | % | 13.3 | % | 5.1 | % | 3.7 | % | 100.0 | % |
(1) | The Company is writing and expects to continue writing nominal premiums in the Florida homeowners market. |
(2) | No individual state accounts for more than 4% of total direct premiums written. |
Insurance type | Published maximum limits of liability |
Private Passenger Automobile - bodily injury (BI) | $250,000 per person; $500,000 per accident (1) |
Private Passenger Automobile (combined policy limits) | $500,000 per accident |
Private Passenger Automobile - property damage | $250,000 per accident (1) |
Commercial Automobile (combined policy limits) | $1,000,000 per accident |
Homeowner property | no maximum (2) (3) |
Homeowner liability | $1,000,000 (3) |
Umbrella liability | $5,000,000 (4) |
Insurance Companies | Formed or Acquired | A.M. Best Rating | Primary States | |||
Mercury Casualty Company ("MCC")(1) | 1961 | A+ | CA, AZ, NV, NY, VA | |||
Mercury Insurance Company ("MIC")(1) | 1972 | A+ | CA | |||
California Automobile Insurance Company ("CAIC")(1) | 1975 | A+ | CA | |||
California General Underwriters Insurance Company, Inc. ("CGU")(1) | 1985 | Non-rated | CA | |||
Mercury Insurance Company of Illinois | 1989 | A+ | IL, PA | |||
Mercury Insurance Company of Georgia | 1989 | A+ | GA | |||
Mercury Indemnity Company of Georgia | 1991 | A+ | GA | |||
Mercury National Insurance Company | 1991 | A+ | IL, MI | |||
American Mercury Insurance Company | 1996 | A- | OK, GA, TX, VA | |||
American Mercury Lloyds Insurance Company ("AML") | 1996 | A- | TX | |||
Mercury County Mutual Insurance Company | 2000 | A- | TX | |||
Mercury Insurance Company of Florida | 2001 | A+ | FL, PA | |||
Mercury Indemnity Company of America | 2001 | A+ | FL, NJ | |||
Workmen’s Auto Insurance Company ("WAIC")(1)(2) | 2015 | Non-rated | CA |
Non-Insurance Companies | Formed or Acquired | Purpose | ||
Mercury Select Management Company, Inc. | 1997 | AML’s attorney-in-fact | ||
Mercury Insurance Services LLC | 2000 | Management services to subsidiaries | ||
AIS Management LLC | 2009 | Parent company of AIS and PoliSeek | ||
Auto Insurance Specialists LLC ("AIS") | 2009 | Insurance agency | ||
PoliSeek AIS Insurance Solutions, Inc. ("PoliSeek") | 2009 | Insurance agency | ||
Animas Funding LLC ("AFL") | 2013 | Special purpose investment vehicle | ||
Fannette Funding LLC ("FFL") | 2014 | Special purpose investment vehicle |
(1) | The term "California Companies" refers to MCC, MIC, CAIC, CGU, and WAIC. |
(2) | WAIC was acquired on January 2, 2015. For more detailed information, see Note 20. Acquisition, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data." |
Year Ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
(Amounts in thousands) | |||||||||||
Gross reserves at January 1(1) | $ | 1,290,248 | $ | 1,146,688 | $ | 1,091,797 | |||||
Less reinsurance recoverables on unpaid losses | (13,161 | ) | (14,253 | ) | (14,192 | ) | |||||
Net reserves at January 1(1) | 1,277,087 | 1,132,435 | 1,077,605 | ||||||||
Acquisition of WAIC reserves | — | — | 18,677 | ||||||||
Incurred losses and loss adjustment expenses related to: | |||||||||||
Current year | 2,390,453 | 2,269,769 | 2,132,837 | ||||||||
Prior years | 54,431 | 85,369 | 12,658 | ||||||||
Total incurred losses and loss adjustment expenses | 2,444,884 | 2,355,138 | 2,145,495 | ||||||||
Loss and loss adjustment expense payments related to: | |||||||||||
Current year | 1,550,789 | 1,508,362 | 1,455,245 | ||||||||
Prior years | 724,570 | 702,124 | 654,097 | ||||||||
Total payments | 2,275,359 | 2,210,486 | 2,109,342 | ||||||||
Net reserves at December 31(1) | 1,446,612 | 1,277,087 | 1,132,435 | ||||||||
Reinsurance recoverables on unpaid losses | 64,001 | 13,161 | 14,253 | ||||||||
Gross reserves at December 31(1) | $ | 1,510,613 | $ | 1,290,248 | $ | 1,146,688 |
(1) | Under statutory accounting principles ("SAP"), reserves are stated net of reinsurance recoverables on unpaid losses whereas under U.S. generally accepted accounting principles ("GAAP"), reserves are stated gross of reinsurance recoverables on unpaid losses. |
• | Policy acquisition costs such as commissions, premium taxes, and other costs that vary with and are primarily related to the successful acquisition of new and renewal insurance contracts, are capitalized and amortized on a pro rata basis over the period in which the related premiums are earned, whereas under SAP, these costs are expensed as incurred. |
• | Certain assets are included in the consolidated balance sheets, whereas under SAP, such assets are designated as "nonadmitted assets," and charged directly against statutory surplus. These assets consist primarily of premium receivables that are outstanding for more than 90 days, deferred tax assets that do not meet statutory requirements for recognition, furniture, equipment, leasehold improvements, capitalized software, and prepaid expenses. |
• | Amounts related to ceded reinsurance are shown gross as prepaid reinsurance premiums and reinsurance recoverables, whereas under SAP, these amounts are netted against unearned premium reserves and loss and loss adjustment expense reserves. |
• | Fixed-maturity securities are reported at fair value, whereas under SAP, these securities are reported at amortized cost, or the lower of amortized cost, or fair value, depending on the specific type of security. |
• | Equity securities are marked to market through the consolidated statements of operations, whereas under SAP, these securities are marked to market through unrealized gains and losses in surplus. |
• | Goodwill is reported as the excess of cost of an acquired entity over the fair value of the underlying assets and assessed periodically for impairment. Intangible assets are amortized over their useful lives. Under SAP, goodwill is reported as the excess of cost of an acquired entity over the statutory book value and amortized over 10 years. Its carrying value is limited to 10% of adjusted surplus. Under SAP, intangible assets are not recognized. |
• | The differing treatment of income and expense items results in a corresponding difference in federal income tax expense. Changes in deferred income taxes are reflected as an item of income tax benefit or expense, whereas under SAP, changes in deferred income taxes are recorded directly to statutory surplus as regards policyholders. Admittance testing under SAP may result in a charge to unassigned surplus for non-admitted portions of deferred tax assets. Under GAAP, a valuation allowance may be recorded against the deferred tax assets and reflected as an expense. |
• | Certain assessments paid to regulatory agencies that are recoverable from policyholders in future periods are expensed, whereas under SAP, these assessments are recorded as receivables. |
Year Ended December 31, | |||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||
Loss ratio | 76.6 | % | 75.3 | % | 72.6 | % | 71.0 | % | 72.7 | % | |||||
Expense ratio | 25.3 | % | 25.7 | % | 26.7 | % | 27.7 | % | 27.2 | % | |||||
Combined ratio | 101.9 | % | 101.0 | % | 99.3 | % | 98.8 | % | (2) | 99.9 | % | ||||
Industry combined ratio (all writers)(1) | N/A | 106.0 | % | 104.1 | % | 101.9 | % | 103.4 | % | ||||||
Industry combined ratio (excluding direct writers)(1) | N/A | 99.7 | % | 100.2 | % | 99.8 | % | 100.7 | % |
(1) | Source: A.M. Best, Aggregates & Averages (2013 through 2016), for all property and casualty insurance companies (private passenger automobile line only, after policyholder dividends). |
(2) | Combined ratio for 2014 does not sum due to rounding. |
Year Ended December 31, | |||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
(Amounts in thousands, except ratios) | |||||||||||||||||||
Net premiums written | $ | 3,215,910 | $ | 3,155,788 | $ | 2,999,392 | $ | 2,840,922 | $ | 2,728,999 | |||||||||
Policyholders’ surplus | $ | 1,589,226 | $ | 1,441,571 | $ | 1,451,950 | $ | 1,438,281 | $ | 1,528,682 | |||||||||
Ratio | 2.0 to 1 | 2.2 to 1 | 2.1 to 1 | 2.0 to 1 | 1.8 to 1 |
December 31, | |||||||||||||||||||||||
2017 | 2016 | 2015 | |||||||||||||||||||||
Cost(1) | Fair Value | Cost(1) | Fair Value | Cost(1) | Fair Value | ||||||||||||||||||
(Amounts in thousands) | |||||||||||||||||||||||
Taxable bonds | $ | 356,018 | $ | 359,240 | $ | 373,335 | $ | 375,495 | $ | 426,905 | $ | 414,396 | |||||||||||
Tax-exempt state and municipal bonds | 2,467,212 | 2,533,537 | 2,422,075 | 2,439,058 | 2,377,370 | 2,465,607 | |||||||||||||||||
Total fixed maturities | 2,823,230 | 2,892,777 | 2,795,410 | 2,814,553 | 2,804,275 | 2,880,003 | |||||||||||||||||
Equity securities | 474,197 | 537,240 | 331,770 | 357,327 | 313,528 | 315,362 | |||||||||||||||||
Short-term investments | 302,693 | 302,711 | 375,700 | 375,680 | 185,353 | 185,277 | |||||||||||||||||
Total investments | $ | 3,600,120 | $ | 3,732,728 | $ | 3,502,880 | $ | 3,547,560 | $ | 3,303,156 | $ | 3,380,642 |
(1) | Fixed maturities and short-term bonds at amortized cost; equities and other short-term investments at cost. |
Year Ended December 31, | |||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
(Dollars in thousands) | |||||||||||||||||||
Average invested assets at cost(1) (2) | $ | 3,582,122 | $ | 3,390,769 | $ | 3,293,948 | $ | 3,204,592 | $ | 3,028,198 | |||||||||
Net investment income(3) | |||||||||||||||||||
Before income taxes | $ | 124,930 | $ | 121,871 | $ | 126,299 | $ | 125,723 | $ | 124,538 | |||||||||
After income taxes | $ | 109,243 | $ | 107,140 | $ | 110,382 | $ | 111,456 | $ | 109,506 | |||||||||
Average annual yield on investments(3) | |||||||||||||||||||
Before income taxes | 3.5 | % | 3.6 | % | 3.8 | % | 3.9 | % | 4.1 | % | |||||||||
After income taxes | 3.1 | % | 3.2 | % | 3.4 | % | 3.5 | % | 3.6 | % | |||||||||
Net realized investment gains (losses) after income taxes | $ | 54,373 | $ | (22,266 | ) | $ | (54,474 | ) | $ | 52,770 | $ | (7,424 | ) |
(1) | Fixed maturities and short-term bonds at amortized cost; equities and other short-term investments at cost. Average invested assets at cost are based on the monthly amortized cost of the invested assets for each period. |
(2) | At December 31, 2017, fixed maturity securities with call features totaled $2.9 billion at fair value and amortized cost. |
(3) | During 2017, net investment income before and after income taxes increased due to higher average invested assets. Average annual yield on investments before and after income taxes decreased slightly, primarily due to the maturity and replacement of higher yielding investments purchased when market interest rates were higher, with lower yielding investments purchased during low interest rate environments. |
Name | Age | Position | ||
George Joseph | 96 | Chairman of the Board | ||
Gabriel Tirador | 53 | President and Chief Executive Officer | ||
Allan Lubitz | 59 | Senior Vice President and Chief Information Officer | ||
Theodore R. Stalick | 54 | Senior Vice President and Chief Financial Officer | ||
Christopher Graves | 52 | Vice President and Chief Investment Officer | ||
Robert Houlihan | 61 | Vice President and Chief Product Officer | ||
Victor G. Joseph | 31 | Vice President and Chief Underwriting Officer | ||
Brandt N. Minnich | 51 | Vice President and Chief Marketing Officer | ||
Randall R. Petro | 54 | Vice President and Chief Claims Officer | ||
Heidi C. Sullivan | 49 | Vice President and Chief Human Capital Officer | ||
Erik Thompson | 49 | Vice President, Advertising and Public Relations | ||
Charles Toney | 56 | Vice President and Chief Actuary | ||
Judy A. Walters | 71 | Vice President, Corporate Affairs and Secretary |
Item 1A. | Risk Factors |
• | availability of sufficient reliable data; |
• | incorrect or incomplete analysis of available data; |
• | uncertainties inherent in estimates and assumptions, generally; |
• | selection and application of appropriate rating formulae or other pricing methodologies; |
• | successful innovation of new pricing strategies; |
• | recognition of changes in trends and in the projected severity and frequency of losses; |
• | the Company’s ability to forecast renewals of existing policies accurately; |
• | unanticipated court decisions, legislation or regulatory action; |
• | ongoing changes in the Company’s claim settlement practices; |
• | changes in operating expenses; |
• | changing driving patterns; |
• | extra-contractual liability arising from bad faith claims; |
• | catastrophes, including those which may be related to climate change; |
• | unexpected medical inflation; and |
• | unanticipated inflation in automobile repair costs, automobile parts prices, and used car prices. |
• | earthquake, fire, flood and other natural disasters; |
• | terrorist attacks and attacks by computer viruses, hackers, phishing, ransomware, or other exploits; |
• | power loss in areas not covered by backup power generators; |
• | unauthorized access; and |
• | computer systems, internet, telecommunications or data network failure. |
• | the use of non-public consumer information and related privacy issues; |
• | the use of credit history in underwriting and rating; |
• | limitations on the ability to charge policy fees; |
• | limitations on types and amounts of investments; |
• | the payment of dividends; |
• | the acquisition or disposition of an insurance company or of any company controlling an insurance company; |
• | involuntary assignments of high-risk policies, participation in reinsurance facilities and underwriting associations, assessments and other governmental charges; |
• | reporting with respect to financial condition; |
• | periodic financial and market conduct examinations performed by state insurance department examiners; and |
• | the other regulations discussed in this Annual Report on Form 10-K. |
Item 1B. | Unresolved Staff Comments |
Item 2. | Properties |
Location | Purpose | Size in Square Feet | Percent Occupied by the Company at December 31, 2017 | |||||
Brea, CA | Home office and I.T. facilities (2 buildings) | 236,000 | 100 | % | ||||
Folsom, CA | Administrative and Data Center | 88,000 | 100 | % | ||||
Los Angeles, CA | Executive offices | 41,000 | 95 | % | ||||
Rancho Cucamonga, CA | Administrative | 127,000 | 100 | % | ||||
Clearwater, FL | Administrative | 164,000 | 62 | % | ||||
Oklahoma City, OK | Administrative | 100,000 | 25 | % |
Item 3. | Legal Proceedings |
Item 4. | Mine Safety Disclosure |
Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
2017 | High | Low | |||||
1st Quarter | $ | 64.52 | $ | 56.45 | |||
2nd Quarter | 63.23 | 53.23 | |||||
3rd Quarter | 61.51 | 52.52 | |||||
4th Quarter | 60.19 | 51.87 |
2016 | High | Low | |||||
1st Quarter | $ | 56.02 | $ | 42.97 | |||
2nd Quarter | 55.95 | 49.69 | |||||
3rd Quarter | 56.14 | 52.00 | |||||
4th Quarter | 61.19 | 50.32 |
2012 | 2013 | 2014 | 2015 | 2016 | 2017 | ||||||||||||||||||
Mercury General | $ | 100.00 | $ | 132.55 | $ | 158.95 | $ | 137.00 | $ | 185.31 | $ | 171.92 | |||||||||||
Industry Peer Group | 100.00 | 132.89 | 161.63 | 155.39 | 187.53 | 227.51 | |||||||||||||||||
S&P 500 Index | 100.00 | 132.39 | 150.51 | 152.59 | 170.84 | 208.14 |
Item 6. | Selected Financial Data |
Year Ended December 31, | |||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
(Amounts in thousands, except per share data) | |||||||||||||||||||
Income Data: | |||||||||||||||||||
Net premiums earned | $ | 3,195,437 | $ | 3,131,773 | $ | 2,957,897 | $ | 2,796,195 | $ | 2,698,187 | |||||||||
Net investment income | 124,930 | 121,871 | 126,299 | 125,723 | 124,538 | ||||||||||||||
Net realized investment gains (losses) | 83,650 | (34,255 | ) | (83,807 | ) | 81,184 | (11,422 | ) | |||||||||||
Other | 11,945 | 8,294 | 8,911 | 8,671 | 9,738 | ||||||||||||||
Total revenues | 3,415,962 | 3,227,683 | 3,009,300 | 3,011,773 | 2,821,041 | ||||||||||||||
Losses and loss adjustment expenses | 2,444,884 | 2,355,138 | 2,145,495 | 1,986,122 | 1,962,690 | ||||||||||||||
Policy acquisition costs | 555,350 | 562,545 | 539,231 | 526,208 | 505,517 | ||||||||||||||
Other operating expenses | 233,475 | 235,314 | 250,839 | 249,381 | 219,478 | ||||||||||||||
Interest | 15,168 | 3,962 | 3,168 | 2,637 | 1,260 | ||||||||||||||
Total expenses | 3,248,877 | 3,156,959 | 2,938,733 | 2,764,348 | 2,688,945 | ||||||||||||||
Income before income taxes | 167,085 | 70,724 | 70,567 | 247,425 | 132,096 | ||||||||||||||
Income tax expense (benefit) | 22,208 | (2,320 | ) | (3,912 | ) | 69,476 | 19,953 | ||||||||||||
Net income | $ | 144,877 | $ | 73,044 | $ | 74,479 | $ | 177,949 | $ | 112,143 | |||||||||
Per Share Data: | |||||||||||||||||||
Basic earnings per share | $ | 2.62 | $ | 1.32 | $ | 1.35 | $ | 3.23 | $ | 2.04 | |||||||||
Diluted earnings per share | $ | 2.62 | $ | 1.32 | $ | 1.35 | $ | 3.23 | $ | 2.04 | |||||||||
Dividends paid per share | $ | 2.4925 | $ | 2.4825 | $ | 2.4725 | $ | 2.4625 | $ | 2.4525 |
December 31, | |||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
(Amounts in thousands, except per share data) | |||||||||||||||||||
Balance Sheet Data: | |||||||||||||||||||
Total investments | $ | 3,732,728 | $ | 3,547,560 | $ | 3,380,642 | $ | 3,403,822 | $ | 3,158,312 | |||||||||
Total assets | 5,101,323 | 4,788,718 | 4,628,645 | 4,600,289 | 4,315,181 | ||||||||||||||
Loss and loss adjustment expense reserves | 1,510,613 | 1,290,248 | 1,146,688 | 1,091,797 | 1,038,984 | ||||||||||||||
Unearned premiums | 1,101,927 | 1,074,437 | 1,049,314 | 999,798 | 953,527 | ||||||||||||||
Notes payable | 371,335 | 320,000 | 290,000 | 290,000 | 190,000 | ||||||||||||||
Shareholders’ equity | 1,761,387 | 1,752,402 | 1,820,885 | 1,875,446 | 1,822,486 | ||||||||||||||
Book value per share | 31.83 | 31.70 | 33.01 | 34.02 | 33.15 |
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
• | Regulatory Uncertainty—The insurance industry is subject to strict state regulation and oversight and is governed by the laws of each state in which each insurance company operates. State regulators generally have substantial power and authority over insurance companies including, in some states, approving rate changes and rating factors, and establishing minimum capital and surplus requirements. In many states, insurance commissioners may emphasize different agendas or interpret existing regulations differently than previous commissioners. There is no certainty that current or future regulations and the interpretation of those regulations by insurance commissioners and the courts will not have an adverse impact on the Company. |
• | Cost Uncertainty—Because insurance companies pay claims after premiums are collected, the ultimate cost of an insurance policy is not known until well after the policy revenues are earned. Consequently, significant assumptions are made when establishing insurance rates and loss reserves. While insurance companies use sophisticated models and experienced actuaries to assist in setting rates and establishing loss reserves, there can be no assurance that current rates or current reserve estimates will be adequate. Furthermore, there can be no assurance that insurance regulators will approve rate increases when the Company’s actuarial analyses indicate that they are needed. |
• | Economic Conditions—Many businesses are experiencing the effects of uncertain conditions in the global economy and capital markets, reduced consumer spending and confidence, and continued volatility, which could adversely impact the Company’s financial condition, results of operations, and liquidity. Further, volatility in global capital markets could adversely affect the Company’s investment portfolio. The Company is unable to predict the impact of current and future global economic conditions on the United States, and California, where the majority of the Company’s business is produced. |
• | Inflation—The largest cost component for automobile insurers is losses, which include medical, replacement automobile parts, and labor costs. There can be significant variation in the overall increases in medical cost inflation, and it is often years after the respective fiscal period ends before sufficient claims have closed for the inflation rate to be known with a reasonable degree of certainty. Therefore, it can be difficult to establish reserves and set premium rates, particularly when actual inflation rates may be higher or lower than anticipated. |
• | Loss Frequency—Another component of overall loss costs is loss frequency, which is the number of claims per risk insured. Loss frequency trends are affected by many factors such as fuel prices, the economy, the prevalence of distracted |
• | Underwriting Cycle and Competition—The property and casualty insurance industry is highly cyclical, with alternating hard and soft market conditions. The Company has historically seen significant premium growth during hard market conditions. The Company believes that the market is hardening with carriers generally raising rates, although this also depends on individual state profitability and the carriers’ growth appetite. |
▪ | In January 2018, the California DOI approved a 5.0% rate increase on MIC's private passenger automobile line of insurance business, which represented approximately 51% of the total Company's net premiums earned in 2017. The Company expects to implement this rate increase in March 2018. |
▪ | In March 2017, the California DOI approved a 6.9% rate increase on CAIC's private passenger automobile line of insurance business, which represented approximately 14% of the Company's total net premiums earned in 2017. This rate increase became effective in May 2017. |
▪ | In April 2017, the California DOI approved a 6.9% rate increase on the California homeowners line of insurance business, which represented approximately 12% of the Company's total net premiums earned in 2017. This rate increase became effective in August 2017. |
• | The incurred loss method analyzes historical incurred case loss (case reserves plus paid losses) development to estimate ultimate losses. The Company applies development factors against current case incurred losses by accident period to calculate ultimate expected losses. The Company believes that the incurred loss method provides a reasonable basis for evaluating ultimate losses, particularly in the Company’s larger, more established lines of insurance business which have a long operating history. |
• | The paid loss method analyzes historical payment patterns to estimate the amount of losses yet to be paid. |
• | The average severity method analyzes historical loss payments and/or incurred losses divided by closed claims and/or total claims to calculate an estimated average cost per claim. From this, the expected ultimate average cost per claim can be estimated. The average severity method coupled with the claim count development method provides meaningful information regarding inflation and frequency trends that the Company believes is useful in establishing loss reserves. The claim count development method analyzes historical claim count development to estimate future incurred claim count development for current claims. The Company applies these development factors against current claim counts by accident period to calculate ultimate expected claim counts. |
• | The GLM determines an average severity for each percentile of claims that have been closed as a percentage of estimated ultimate claims. The average severities are applied to open claims to estimate the amount of losses yet to be paid. The GLM utilizes operational time, determined as a percentile of claims closed rather than a finite calendar period, which neutralizes the effect of changes in the timing of claims handling. |
• | BI reserves—approximately 75% of total reserves |
• | Material damage ("MD") reserves, including collision and comprehensive property damage—approximately 10% of total reserves |
• | Loss adjustment expense reserves—approximately 15% of total reserves. |
% of Total | |||
Claims Closed | Dollars Paid | ||
BI claims closed in the accident year reported | 39% | 12% | |
BI claims closed one year after the accident year reported | 77% | 54% | |
BI claims closed two years after the accident year reported | 93% | 79% | |
BI claims closed three years after the accident year reported | 98% | 93% |
High | Low | ||
Immediate preceding accident year | (2.2)% | (5.1)% | |
Second preceding accident year | 2.3% | (3.1)% | |
Third preceding accident year | 2.0% | (2.9)% |
Accident Year | Number of Claims Expected (1) | Actual Recorded Severity at 12/31/17 (1) | Implied Inflation Rate Recorded (2) | (A) Pro-forma severity if actual severity is lower by 10% for 2017, 5% for 2016, and 3% for 2015 | (B) Pro-forma severity if actual severity is higher by 10% for 2017, 5% for 2016, and 3% for 2015 | Favorable loss development if actual severity is less than recorded (Column A) | Unfavorable loss development if actual severity is more than recorded (Column B) | |||||||||||||||||||
2017 | 27,880 | (3) | $ | 13,603 | (3) | 20.5 | % | (3) | $ | 12,243 | $ | 14,963 | $ | 37,917,000 | $ | (37,917,000 | ) | |||||||||
2016 | 29,339 | (3) | $ | 11,291 | (3) | 8.1 | % | (3) | $ | 10,726 | $ | 11,856 | $ | 16,577,000 | $ | (16,577,000 | ) | |||||||||
2015 | 32,176 | $ | 10,446 | 3.9 | % | $ | 10,133 | $ | 10,759 | $ | 10,071,000 | $ | (10,071,000 | ) | ||||||||||||
2014 | 32,189 | $ | 10,057 | — | — | — | — | — | ||||||||||||||||||
Total Loss Development—Favorable (Unfavorable) | $ | 64,565,000 | $ | (64,565,000 | ) |
(1) | The number of claims expected and the actual recorded severity for the 2014 and 2015 accident years are not comparable with the amounts previously reported on this table in prior filings. These amounts have been restated to be on a consistent reporting basis with the 2016 and 2017 accident years. |
(2) | Implied inflation rate is calculated by dividing the difference between the current and prior year actual recorded severity by the prior year actual recorded severity. |
(3) | During 2016, the Company implemented a claims strategy that reduced the number of small dollar settlements offered shortly after the claims were reported. This strategy reduced the total number of claims expected, which had the effect of increasing the actual recorded severity across the total claims population. There were fewer small dollar claims in the calculation of actual recorded severity for the 2016 and 2017 accident years compared to prior accident years. Consequently, the implied inflation rate recorded for these accident years is skewed upward due to this strategy change. |
2017 Accident Year | Claims Reported | Amount Recorded at 12/31/17 at 4.7% Claim Count Development | Total Expected Amount If Claim Count Development is 0% | Total Expected Amount If Claim Count Development is 10% | ||||||||||
Claim count | 26,628 | 27,880 | 26,628 | 29,291 | ||||||||||
Approximate average cost per claim | Not meaningful | $ | 13,603 | $ | 13,603 | $ | 13,603 | |||||||
Total dollars | Not meaningful | $ | 379,252,000 | $ | 362,221,000 | $ | 398,445,000 | |||||||
Total Loss Development—Favorable (Unfavorable) | $ | 17,031,000 | $ | (19,193,000 | ) |
Year Ended December 31, | |||||||
2017 | 2016 | ||||||
(Amounts in thousands) | |||||||
Net premiums earned | $ | 3,195,437 | $ | 3,131,773 | |||
Change in net unearned premiums | 20,473 | 24,015 | |||||
Net premiums written | $ | 3,215,910 | $ | 3,155,788 |
Year Ended December 31, | |||||
2017 | 2016 | ||||
Loss ratio | 76.5 | % | 75.2 | % | |
Expense ratio | 24.7 | % | 25.5 | % | |
Combined ratio | 101.2 | % | 100.7 | % |
Year Ended December 31, | |||||||
2017 | 2016 | ||||||
(Amounts in thousands) | |||||||
Average invested assets at cost (1) | $ | 3,582,122 | $ | 3,390,769 | |||
Net investment income (2) | |||||||
Before income taxes | $ | 124,930 | $ | 121,871 | |||
After income taxes | $ | 109,243 | $ | 107,140 | |||
Average annual yield on investments (2) | |||||||
Before income taxes | 3.5 | % | 3.6 | % | |||
After income taxes | 3.1 | % | 3.2 | % | |||
Net realized investment gains (losses) | $ | 83,650 | $ | (34,255 | ) |
(1) | Fixed maturities and short-term bonds at amortized cost; equities and other short-term investments at cost. Average invested assets at cost are based on the monthly amortized cost of the invested assets for each respective period. |
(2) | Net investment income before and after income taxes increased due to higher average invested assets. Average annual yield on investments before and after income taxes decreased slightly, primarily due to the maturity and replacement of higher yielding investments purchased when market interest rates were higher, with lower yielding investments purchased during low interest rate environments. |
Year Ended December 31, 2017 | |||||||||||
(Losses) Gains Recognized in Income | |||||||||||
Sales | Changes in fair value | Total | |||||||||
(Amounts in thousands) | |||||||||||
Net realized investment (losses) gains: | |||||||||||
Fixed maturity securities (1)(2) | $ | (2,097 | ) | $ | 50,403 | $ | 48,306 | ||||
Equity securities (1)(3) | (2,213 | ) | 37,486 | 35,273 | |||||||
Short-term investments (1) | 1 | 38 | 39 | ||||||||
Note receivable (1) | — | (122 | ) | (122 | ) | ||||||
Total return swaps | (1,035 | ) | (1,102 | ) | (2,137 | ) | |||||
Options sold | 2,294 | (3 | ) | 2,291 | |||||||
Total | $ | (3,050 | ) | $ | 86,700 | $ | 83,650 |
Year Ended December 31, 2016 | |||||||||||
(Losses) Gains Recognized in Income | |||||||||||
Sales | Changes in fair value | Total | |||||||||
(Amounts in thousands) | |||||||||||
Net realized investment (losses) gains: | |||||||||||
Fixed maturity securities (1)(2) | $ | (15,806 | ) | $ | (56,584 | ) | $ | (72,390 | ) | ||
Equity securities (1)(3) | (499 | ) | 23,722 | 23,223 | |||||||
Short-term investments (1) | (524 | ) | 57 | (467 | ) | ||||||
Total return swaps | 107 | 11,426 | 11,533 | ||||||||
Options sold | 3,846 | — | 3,846 | ||||||||
Total | $ | (12,876 | ) | $ | (21,379 | ) | $ | (34,255 | ) |
(1) | The changes in fair value of the investment portfolio and note receivable resulted from the application of the fair value option. |
(2) | The increases in fair value of fixed maturity securities during 2017 were primarily due to the overall improvement in the market conditions affecting fixed maturity securities, while the fair value in 2016 was adversely affected by the increases in market interest rates. |
(3) | The increases in fair value of equity securities during 2017 and 2016 were primarily due to an overall improvement in the equity markets. |
Year Ended December 31, | |||||||
2017 | 2016 | ||||||
(Amounts in thousands, except per share data) | |||||||
Net income | $ | 144,877 | $ | 73,044 | |||
Basic average shares outstanding | 55,316 | 55,249 | |||||
Diluted average shares outstanding | 55,327 | 55,302 | |||||
Basic Per Share Data: | |||||||
Net income | $ | 2.62 | $ | 1.32 | |||
Net realized investment gains (losses), net of tax | $ | 0.98 | $ | (0.40 | ) | ||
Diluted Per Share Data: | |||||||
Net income | $ | 2.62 | $ | 1.32 | |||
Net realized investment gains (losses), net of tax | $ | 0.98 | $ | (0.40 | ) |
Year Ended December 31, | |||||||
2016 | 2015 | ||||||
(Amounts in thousands) | |||||||
Net premiums earned | $ | 3,131,773 | $ | 2,957,897 | |||
Change in net unearned premiums | 24,015 | 41,495 | |||||
Net premiums written | $ | 3,155,788 | $ | 2,999,392 |
Year Ended December 31, | |||||
2016 | 2015 | ||||
Loss ratio | 75.2 | % | 72.5 | % | |
Expense ratio | 25.5 | % | 26.7 | % | |
Combined ratio | 100.7 | % | 99.2 | % |
Year Ended December 31, | |||||||
2016 | 2015 | ||||||
(Amounts in thousands) | |||||||
Average invested assets at cost (1) | $ | 3,390,769 | $ | 3,293,948 | |||
Net investment income (2) | |||||||
Before income taxes | $ | 121,871 | $ | 126,299 | |||
After income taxes | $ | 107,140 | $ | 110,382 | |||
Average annual yield on investments (2) | |||||||
Before income taxes | 3.6 | % | 3.8 | % | |||
After income taxes | 3.2 | % | 3.4 | % | |||
Net realized investment losses | $ | (34,255 | ) | $ | (83,807 | ) |
(1) | Fixed maturities and short-term bonds at amortized cost; equities and other short-term investments at cost. Average invested assets at cost are based on the monthly amortized cost of the invested assets for each respective period. |
(2) | Net investment income before and after income taxes and average annual yield on investments before and after income taxes decreased slightly, primarily due to the maturity and replacement of higher yielding investments purchased when market interest rates were higher, with lower yielding investments purchased during low interest rate environments. |
Year Ended December 31, 2016 | |||||||||||
(Losses) Gains Recognized in Income | |||||||||||
Sales | Changes in fair value | Total | |||||||||
(Amounts in thousands) | |||||||||||
Net realized investment (losses) gains: | |||||||||||
Fixed maturity securities (1)(2) | $ | (15,806 | ) | $ | (56,584 | ) | $ | (72,390 | ) | ||
Equity securities (1)(3) | (499 | ) | 23,722 | 23,223 | |||||||
Short-term investments (1) | (524 | ) | 57 | (467 | ) | ||||||
Total return swaps | 107 | 11,426 | 11,533 | ||||||||
Options sold | 3,846 | — | 3,846 | ||||||||
Total | $ | (12,876 | ) | $ | (21,379 | ) | $ | (34,255 | ) |
Year Ended December 31, 2015 | |||||||||||
(Losses) Gains Recognized in Income | |||||||||||
Sales | Changes in fair value | Total | |||||||||
(Amounts in thousands) | |||||||||||
Net realized investment (losses) gains: | |||||||||||
Fixed maturity securities (1)(2) | $ | 136 | $ | (39,304 | ) | $ | (39,168 | ) | |||
Equity securities (1)(3) | (17,459 | ) | (22,988 | ) | (40,447 | ) | |||||
Short-term investments (1) | (1,396 | ) | 561 | (835 | ) | ||||||
Total return swap | 1,062 | (7,500 | ) | (6,438 | ) | ||||||
Options sold | 3,021 | 60 | 3,081 | ||||||||
Total | $ | (14,636 | ) | $ | (69,171 | ) | $ | (83,807 | ) |
(1) | The changes in fair value of the investment portfolio resulted from the application of the fair value option. |
(2) | The Company’s municipal bond holdings represent the majority of the fixed maturity portfolio. The fair values in 2016 and 2015 were adversely affected by the increase in market interest rates. |
(3) | In 2016, the increases in the fair value of equity securities were primarily due to an overall improvement in the equity markets. In 2015, the decreases in the fair value of equity securities were primarily due to a decline in the value of the Company's holdings in industrial stocks. |
Year Ended December 31, | |||||||
2016 | 2015 | ||||||
(Amounts in thousands, except per share data) | |||||||
Net income | $ | 73,044 | $ | 74,479 | |||
Basic average shares outstanding | 55,249 | 55,157 | |||||
Diluted average shares outstanding | 55,302 | 55,209 | |||||
Basic Per Share Data: | |||||||
Net income | $ | 1.32 | $ | 1.35 | |||
Net realized investment losses, net of tax | $ | (0.40 | ) | $ | (0.99 | ) | |
Diluted Per Share Data: | |||||||
Net income | $ | 1.32 | $ | 1.35 | |||
Net realized investment losses, net of tax | $ | (0.40 | ) | $ | (0.99 | ) |
Fixed Maturity Securities | |||
(Amounts in thousands) | |||
Due in one year or less | $ | 200,963 | |
Due after one year through two years | 170,194 | ||
Due after two years through three years | 126,688 | ||
Due after three years through four years | 122,103 | ||
Due after four years through five years | 113,359 | ||
$ | 733,307 |
Cost(1) | Fair Value | ||||||
(Amounts in thousands) | |||||||
Fixed maturity securities: | |||||||
U.S. government bonds | $ | 13,355 | $ | 13,236 | |||
Municipal securities | 2,490,150 | 2,556,532 | |||||
Mortgage-backed securities | 26,454 | 27,165 | |||||
Corporate securities | 136,013 | 137,542 | |||||
Collateralized loan obligations | 104,323 | 105,202 | |||||
Other asset-backed securities | 52,935 | 53,100 | |||||
2,823,230 | 2,892,777 | ||||||
Equity securities: | |||||||
Common stock | 368,619 | 429,367 | |||||
Non-redeemable preferred stock | 34,429 | 34,869 | |||||
Private equity fund | 1,481 | 1,481 | |||||
Private equity fund measured at net asset value (2) | 69,668 | 71,523 | |||||
474,197 | 537,240 | ||||||
Short-term investments | 302,693 | 302,711 | |||||
Total investments | $ | 3,600,120 | $ | 3,732,728 |
(1) | Fixed maturities and short-term bonds at amortized cost and equities and other short-term investments at cost. |
(2) | The fair value is measured using the net asset value practical expedient. See Note 4. Fair Value Measurements of the Notes to Consolidated Financial Statements for additional information. |
December 31, 2017 | December 31, 2016 | ||
(in years) | |||
Fixed Maturity Securities | |||
Nominal average maturity: | |||
excluding short-term investments | 12.9 | 11.9 | |
including short-term investments | 11.6 | 10.5 | |
Call-adjusted average maturities: | |||
excluding short-term investments | 5.3 | 4.5 | |
including short-term investments | 4.8 | 4.0 | |
Modified duration reflecting anticipated early calls: | |||
excluding short-term investments | 4.4 | 4.1 | |
including short-term investments | 4.0 | 3.7 | |
Short-Term Investments | — | — |
December 31, 2017 | ||||||||||||||||||||||||
Security Type | AAA(1) | AA(1) | A(1) | BBB(1) | Non-Rated/Other (1) | Total Fair Value(1) | ||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
U.S. government bonds: | ||||||||||||||||||||||||
Treasuries | $ | 13,236 | $ | — | $ | — | $ | — | $ | — | $ | 13,236 | ||||||||||||
Total | 13,236 | — | — | — | — | 13,236 | ||||||||||||||||||
100.0 | % | — | — | — | — | 100.0 | % | |||||||||||||||||
Municipal securities: | ||||||||||||||||||||||||
Insured | 26,243 | 148,277 | 259,337 | 29,587 | 17,194 | 480,638 | ||||||||||||||||||
Uninsured | 47,913 | 681,402 | 1,056,239 | 217,002 | 73,338 | 2,075,894 | ||||||||||||||||||
Total | 74,156 | 829,679 | 1,315,576 | 246,589 | 90,532 | 2,556,532 | ||||||||||||||||||
2.9 | % | 32.5 | % | 51.5 | % | 9.5 | % | 3.6 | % | 100.0 | % | |||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||||||
Commercial | — | 7,027 | 8,262 | 4,012 | — | 19,301 | ||||||||||||||||||
Agencies | 2,472 | — | — | — | — | 2,472 | ||||||||||||||||||
Non-agencies: | ||||||||||||||||||||||||
Prime | — | — | 355 | 75 | 1,116 | 1,546 | ||||||||||||||||||
Alt-A | — | — | — | 1,043 | 2,803 | 3,846 | ||||||||||||||||||
Total | 2,472 | 7,027 | 8,617 | 5,130 | 3,919 | 27,165 | ||||||||||||||||||
9.1 | % | 25.9 | % | 31.7 | % | 18.9 | % | 14.4 | % | 100.0 | % | |||||||||||||
Corporate securities: | ||||||||||||||||||||||||
Basic materials | — | — | — | 6,238 | 2,702 | 8,940 | ||||||||||||||||||
Communications | — | — | 159 | 5,664 | 5,823 | |||||||||||||||||||
Consumer, cyclical | — | — | 1,147 | 10,329 | 5,459 | 16,935 | ||||||||||||||||||
Consumer, non-cyclical | — | — | 314 | 3,692 | — | 4,006 | ||||||||||||||||||
Energy | — | — | 3,091 | 16,124 | 25,632 | 44,847 | ||||||||||||||||||
Financial | — | 452 | 17,491 | 20,336 | 4,928 | 43,207 | ||||||||||||||||||
Industrial | — | — | 162 | 4,308 | — | 4,470 | ||||||||||||||||||
Technology | — | — | — | — | 2,288 | 2,288 | ||||||||||||||||||
Utilities | — | — | 6,310 | 146 | 570 | 7,026 | ||||||||||||||||||
Total | — | 452 | 28,674 | 66,837 | 41,579 | 137,542 | ||||||||||||||||||
— | 0.3 | % | 20.8 | % | 48.6 | % | 30.3 | % | 100.0 | % | ||||||||||||||
Collateralized loan obligations: | ||||||||||||||||||||||||
Corporate | 10,924 | 3,269 | 91,009 | — | — | 105,202 | ||||||||||||||||||
Total | 10,924 | 3,269 | 91,009 | — | — | 105,202 | ||||||||||||||||||
10.4 | % | 3.1 | % | 86.5 | % | — | — | 100.0 | % | |||||||||||||||
Other asset-backed securities | 17,099 | 13,215 | 7,449 | 15,337 | — | 53,100 | ||||||||||||||||||
32.2 | % | 24.9 | % | 14.0 | % | 28.9 | % | — | 100.0 | % | ||||||||||||||
Total | $ | 117,887 | $ | 853,642 | $ | 1,451,325 | $ | 333,893 | $ | 136,030 | $ | 2,892,777 | ||||||||||||
4.1 | % | 29.5 | % | 50.2 | % | 11.5 | % | 4.7 | % | 100.0 | % |
(1) | Intermediate ratings are included at each level (e.g., AA includes AA+, AA and AA-). |
December 31, | |||||||||||||||
2017 | 2016 | ||||||||||||||
Cost | Fair Value | Cost | Fair Value | ||||||||||||
(Amounts in thousands) | |||||||||||||||
Equity securities: | |||||||||||||||
Basic materials | $ | 16,265 | $ | 20,728 | $ | 10,834 | $ | 12,895 | |||||||
Communications | 17,233 | 21,289 | 15,596 | 15,935 | |||||||||||
Consumer, cyclical | 23,508 | 29,720 | 25,950 | 28,481 | |||||||||||
Consumer, non-cyclical | 23,773 | 27,246 | 23,798 | 22,125 | |||||||||||
Energy | 47,145 | 53,905 | 45,230 | 52,654 | |||||||||||
Financial | 76,335 | 86,778 | 56,167 | 59,226 | |||||||||||
Funds | 102,796 | 109,115 | 37,750 | 34,840 | |||||||||||
Industrial | 29,262 | 37,540 | 26,050 | 29,665 | |||||||||||
Technology | 29,787 | 39,371 | 19,409 | 22,450 | |||||||||||
Utilities | 108,093 | 111,548 | 70,986 | 79,056 | |||||||||||
$ | 474,197 | $ | 537,240 | $ | 331,770 | $ | 357,327 |
December 31, | ||||||||||||||
Lender | Interest Rate | Expiration | 2017 | 2016 | ||||||||||
(Amounts in thousands) | ||||||||||||||
Secured credit facility(1) | Bank of America | LIBOR plus 40 basis points | December 3, 2018 | $ | — | $ | 120,000 | |||||||
Secured loan(1) | Union Bank | LIBOR plus 40 basis points | December 3, 2017 | — | 20,000 | |||||||||
Unsecured credit facility(1) | Bank of America and Union Bank | LIBOR plus 112.5-162.5 basis points | December 3, 2019 | — | 180,000 | |||||||||
Senior unsecured notes(2) | Publicly traded | 4.40% | March 15, 2027 | 375,000 | — | |||||||||
Unsecured credit facility(3) | Bank of America and Wells Fargo Bank | LIBOR plus 112.5-162.5 basis points | March 29, 2022 | — | — | |||||||||
Total principal amount | 375,000 | 320,000 | ||||||||||||
Less unamortized discount and debt issuance costs(4) | 3,665 | — | ||||||||||||
Total | $ | 371,335 | $ | 320,000 |
(1) | On March 8, 2017, the loan and credit facility agreements were terminated and the Company repaid the total outstanding amounts with the proceeds from its public offering of $375 million of senior notes. |
(2) | On March 8, 2017, the Company completed a public debt offering issuing $375 million of senior notes. The notes are unsecured senior obligations of the Company, with a 4.4% annual coupon payable on March 15 and September 15 of each year commencing September 15, 2017. These notes mature on March 15, 2027. The Company used the proceeds from the notes to pay off amounts outstanding under the existing loan and credit facilities and for general corporate purposes. The Company incurred debt issuance costs of approximately $3.4 million, inclusive of underwriters' fees. The notes were issued at a slight discount of 99.847% of par, resulting in the effective annualized interest rate, including debt issuance costs, of approximately 4.45%. |
(3) | On March 29, 2017, the Company entered into an unsecured credit agreement that provides for revolving loans of up to $50 million and matures on March 29, 2022. The interest rates on borrowings under the credit facility are based on the Company's debt to total capital ratio and range from LIBOR plus 112.5 basis points when the ratio is under 15% to LIBOR plus 162.5 basis points when the ratio is greater than or equal to 25%. Commitment fees for the undrawn portions of the credit facility range from 12.5 basis points when the ratio is under 15% to 22.5 basis points when the ratio is greater than or equal to 25%. The debt to total capital ratio is expressed as a percentage of (a) consolidated debt to (b) consolidated shareholders' equity plus consolidated debt. The Company's debt to total capital ratio was 17.6% at December 31, 2017, resulting in a 15 basis point commitment fee on the $50 million undrawn portion of the credit facility. As of February 2, 2018, there have been no borrowings under this facility. |
(4) | The unamortized discount and debt issuance costs of approximately $3.7 million are associated with the publicly traded $375 million senior unsecured notes. These are amortized to interest expense over the life of the notes, and the unamortized balance is presented in the Company's consolidated balance sheets as a direct deduction from the carrying amount of the debt. The unamortized debt issuance cost of approximately $0.2 million associated with the $50 million five-year unsecured revolving credit facility maturing on March 29, 2022 is included in other assets in the Company's consolidated balance sheets and amortized to interest expense over the term of the credit facility. |
State | Exam Type | Period Under Review | Status | |||
GA | Financial | 2011 to 2013 | Received final report. | |||
CA | Financial | 2014 to 2017 | Fieldwork is expected to begin in the second quarter of 2018. | |||
CA | Market Conduct Claims | 2015 | Field work is completed. Awaiting draft report. | |||
CA | Rating and Underwriting | 2014 | Field work is completed. Awaiting draft report. | |||
VA | Market Conduct | 2014 to 2015 | Received draft report and awaiting final report. | |||
TX | Market Conduct | 2016 | Fieldwork is expected to begin in the first quarter of 2018. |
Contractual Obligations (4) | Payments Due By Period | ||||||||||||||||||||||||||
Total | 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | |||||||||||||||||||||
(Amounts in thousands) | |||||||||||||||||||||||||||
Debt (including interest)(1) | $ | 531,750 | $ | 16,500 | $ | 16,500 | $ | 16,500 | $ | 16,500 | $ | 16,500 | $ | 449,250 | |||||||||||||
Lease obligations(2) | 31,930 | 10,818 | 8,024 | 5,791 | 3,855 | 2,769 | 673 | ||||||||||||||||||||
Loss and loss adjustment expense reserves(3) | 1,510,613 | 992,747 | 256,359 | 127,562 | 74,094 | 34,005 | 25,846 | ||||||||||||||||||||
Total contractual obligations | $ | 2,074,293 | $ | 1,020,065 | $ | 280,883 | $ | 149,853 | $ | 94,449 | $ | 53,274 | $ | 475,769 |
(1) | The Company’s debt contains various terms, conditions and covenants which, if violated by the Company, would result in a default and could result in the acceleration of the Company’s payment obligations. Amounts differ from the balances presented on the consolidated balance sheets as of December 31, 2017 because the debt amounts above include interest, calculated at the stated 4.4% coupon rate, and exclude the discount and issuance costs of the debt. |
(2) | The Company is obligated under various non-cancellable lease agreements providing for office space, automobiles, and office equipment that expire at various dates through the year 2023. |
(3) | Loss and loss adjustment expense reserves represents an estimate of amounts necessary to settle all outstanding claims, including IBNR as of December 31, 2017. The Company has estimated the timing of these payments based on its historical experience and expectation of future payment patterns. However, the timing of these payments may vary significantly from the amounts shown above. The ultimate cost of losses may vary materially from recorded amounts which are the Company’s best estimates. The Company believes that cash flows from operations and existing cash and investments are sufficient to meet these obligations despite the uncertainty in payment patterns. For more detailed information on the Company's liquidity and cash flows, see "Liquidity and Capital Resources—B. Cash Flows" in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." |
(4) | The table excludes liabilities of $10.1 million related to uncertainty in tax settlements as the Company is unable to reasonably estimate the timing and amount of related future payments. |
Item 7A. | Quantitative and Qualitative Disclosures about Market Risks |
States | Fair Value | Average Rating | ||||
(Amounts in thousands) | ||||||
Texas | $ | 379,481 | AA- | |||
California | 205,159 | A+ | ||||
Florida | 192,205 | A+ | ||||
Illinois | 183,376 | A- | ||||
Washington | 120,049 | AA- | ||||
Other states | 1,476,262 | A+ | ||||
Total | $ | 2,556,532 |
December 31, | ||||||||
2017 | 2016 | |||||||
(Amounts in thousands, except Average Beta) | ||||||||
Average Beta | 0.88 | 0.83 | ||||||
Hypothetical reduction of 25% in the overall value of the stock market | $ | 99,828 | $ | 70,410 | ||||
Hypothetical reduction of 50% in the overall value of the stock market | $ | 199,656 | $ | 140,820 |
Item 8. | Financial Statements and Supplementary Data |
Page | |
Consolidated Financial Statements: | |
December 31, | |||||||
2017 | 2016 | ||||||
ASSETS | |||||||
Investments, at fair value: | |||||||
Fixed maturity securities (amortized cost $2,823,230; $2,795,410) | $ | 2,892,777 | $ | 2,814,553 | |||
Equity securities (cost $474,197; $331,770) | 537,240 | 357,327 | |||||
Short-term investments (cost $302,693; $375,700) | 302,711 | 375,680 | |||||
Total investments | 3,732,728 | 3,547,560 | |||||
Cash | 291,413 | 220,318 | |||||
Receivables: | |||||||
Premiums | 474,060 | 459,152 | |||||
Accrued investment income | 39,368 | 41,205 | |||||
Other | 6,658 | 11,329 | |||||
Total receivables | 520,086 | 511,686 | |||||
Reinsurance recoverables | 56,349 | 13,306 | |||||
Deferred policy acquisition costs | 198,151 | 200,826 | |||||
Fixed assets, net | 145,223 | 155,910 | |||||
Current income taxes | 61,257 | — | |||||
Deferred income taxes | — | 45,277 | |||||
Goodwill | 42,796 | 42,796 | |||||
Other intangible assets, net | 20,728 | 25,625 | |||||
Other assets | 32,592 | 25,414 | |||||
Total assets | $ | 5,101,323 | $ | 4,788,718 | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
Loss and loss adjustment expense reserves | $ | 1,510,613 | $ | 1,290,248 | |||
Unearned premiums | 1,101,927 | 1,074,437 | |||||
Notes payable | 371,335 | 320,000 | |||||
Accounts payable and accrued expenses | 108,252 | 112,334 | |||||
Current income taxes | — | 9,962 | |||||
Deferred income taxes | 22,932 | — | |||||
Other liabilities | 224,877 | 229,335 | |||||
Total liabilities | 3,339,936 | 3,036,316 | |||||
Commitments and contingencies | |||||||
Shareholders’ equity: | |||||||
Common stock without par value or stated value: | |||||||
Authorized 70,000 shares; issued and outstanding 55,332; 55,289 | 97,523 | 95,529 | |||||
Retained earnings | 1,663,864 | 1,656,873 | |||||
Total shareholders’ equity | 1,761,387 | 1,752,402 | |||||
Total liabilities and shareholders’ equity | $ | 5,101,323 | $ | 4,788,718 |
Year Ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Revenues: | |||||||||||
Net premiums earned | $ | 3,195,437 | $ | 3,131,773 | $ | 2,957,897 | |||||
Net investment income | 124,930 | 121,871 | 126,299 | ||||||||
Net realized investment gains (losses) | 83,650 | (34,255 | ) | (83,807 | ) | ||||||
Other | 11,945 | 8,294 | 8,911 | ||||||||
Total revenues | 3,415,962 | 3,227,683 | 3,009,300 | ||||||||
Expenses: | |||||||||||
Losses and loss adjustment expenses | 2,444,884 | 2,355,138 | 2,145,495 | ||||||||
Policy acquisition costs | 555,350 | 562,545 | 539,231 | ||||||||
Other operating expenses | 233,475 | 235,314 | 250,839 | ||||||||
Interest | 15,168 | 3,962 | 3,168 | ||||||||
Total expenses | 3,248,877 | 3,156,959 | 2,938,733 | ||||||||
Income before income taxes | 167,085 | 70,724 | 70,567 | ||||||||
Income tax expense (benefit) | 22,208 | (2,320 | ) | (3,912 | ) | ||||||
Net income | $ | 144,877 | $ | 73,044 | $ | 74,479 | |||||
Net income per share: | |||||||||||
Basic | $ | 2.62 | $ | 1.32 | $ | 1.35 | |||||
Diluted | $ | 2.62 | $ | 1.32 | $ | 1.35 |
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Common stock, beginning of year | $ | 95,529 | $ | 90,985 | $ | 88,705 | ||||||
Proceeds of stock options exercised | 2,102 | 1,818 | 2,111 | |||||||||
Payment for vested restricted stock units and related taxes | — | 1,671 | — | — | ||||||||
Reclassification of restricted stock units from equity to liability award | (168 | ) | — | — | ||||||||
Share-based compensation expense | 60 | 142 | 142 | |||||||||
Excess tax benefits related to share-based compensation | — | 913 | 27 | |||||||||
Common stock, end of year | 97,523 | 95,529 | 90,985 | |||||||||
Additional paid in capital, beginning of year | — | 8,870 | 3,804 | |||||||||
Share-based compensation expense | — | — | 5,066 | |||||||||
Payment for vested restricted stock units and related taxes | — | (5,122 | ) | — | ||||||||
Reclassification of restricted stock units from equity to liability award | — | (3,435 | ) | — | ||||||||
Exercise of stock options | — | (313 | ) | — | ||||||||
Additional paid in capital, end of year | — | — | 8,870 | |||||||||
Retained earnings, beginning of year | 1,656,873 | 1,721,030 | 1,782,937 | |||||||||
Net income | 144,877 | 73,044 | 74,479 | |||||||||
Dividends paid to shareholders | (137,886 | ) | (137,201 | ) | (136,386 | ) | ||||||
Retained earnings, end of year | 1,663,864 | 1,656,873 | 1,721,030 | |||||||||
Total shareholders’ equity | $ | 1,761,387 | $ | 1,752,402 | $ | 1,820,885 |
Year Ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||
Net income | $ | 144,877 | $ | 73,044 | $ | 74,479 | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Depreciation and amortization | 55,343 | 53,258 | 47,838 | ||||||||
Net realized investment (gains) losses | (83,650 | ) | 34,255 | 83,807 | |||||||
Increase in premiums receivable | (14,908 | ) | (22,531 | ) | (41,512 | ) | |||||
Change in reinsurance recoverables | (43,043 | ) | 998 | (89 | ) | ||||||
Gain on sale of fixed assets | (3,078 | ) | — | — | |||||||
Changes in current and deferred income taxes | (3,010 | ) | (2,130 | ) | (35,287 | ) | |||||
Decrease (increase) in deferred policy acquisition costs | 2,675 | 936 | (4,560 | ) | |||||||
Increase in loss and loss adjustment expense reserves | 220,365 | 143,560 | 36,214 | ||||||||
Increase in unearned premiums | 27,490 | 25,124 | 42,552 | ||||||||
Decrease in accounts payable and accrued expenses | (4,178 | ) | (10,586 | ) | (35,086 | ) | |||||
Share-based compensation | 60 | 142 | 142 | ||||||||
Other, net | 42,462 | (4,392 | ) | 21,773 | |||||||
Net cash provided by operating activities | 341,405 | 291,678 | 190,271 | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||||
Fixed maturity securities available for sale in nature: | |||||||||||
Purchases | (734,397 | ) | (1,077,638 | ) | (965,701 | ) | |||||
Sales | 100,709 | 396,766 | 260,946 | ||||||||
Calls or maturities | 575,735 | 647,059 | 386,644 | ||||||||
Equity securities available for sale in nature: | |||||||||||
Purchases | (831,310 | ) | (714,113 | ) | (748,217 | ) | |||||
Sales | 679,571 | 696,138 | 805,417 | ||||||||
Calls | 7,100 | — | 2,851 | ||||||||
Changes in securities payable and receivable | (44,740 | ) | 29,958 | (1,387 | ) | ||||||
Changes in short-term investments and purchased options | 73,005 | (191,530 | ) | 187,492 | |||||||
Purchase of fixed assets | (19,443 | ) | (16,979 | ) | (20,112 | ) | |||||
Sale of fixed assets | 6,239 | 14 | 141 | ||||||||
Business acquisition, net of cash acquired | — | — | 7,771 | ||||||||
Other, net | 1,934 | 3,605 | 2,473 | ||||||||
Net cash used in investing activities | (185,597 | ) | (226,720 | ) | (81,682 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||||
Dividends paid to shareholders | (137,886 | ) | (137,201 | ) | (136,386 | ) | |||||
Employee taxes paid with shares related to share-based compensation | — | (3,292 | ) | — | |||||||
Proceeds from stock options exercised | 2,162 | 1,632 | 2,111 | ||||||||
Net proceeds from issuance of senior notes | 371,011 | — | — | ||||||||
Payoff of principal on loan and credit facilities | (320,000 | ) | — | — | |||||||
Proceeds from bank loan | — | 30,000 | — | ||||||||
Net cash used in financing activities | (84,713 | ) | (108,861 | ) | (134,275 | ) | |||||
Net increase (decrease) in cash | 71,095 | (43,903 | ) | (25,686 | ) | ||||||
Cash: | |||||||||||
Beginning of year | 220,318 | 264,221 | 289,907 | ||||||||
End of year | $ | 291,413 | $ | 220,318 | $ | 264,221 | |||||
SUPPLEMENTAL CASH FLOW DISCLOSURE | |||||||||||
Interest paid | $ | 9,863 | $ | 3,531 | $ | 2,989 | |||||
Income taxes paid (refunded), net | $ | 25,218 | $ | (183 | ) | $ | 31,390 |
Insurance Companies | ||
Mercury Casualty Company ("MCC") | Mercury National Insurance Company | |
Mercury Insurance Company ("MIC") | American Mercury Insurance Company | |
California Automobile Insurance Company ("CAIC") | American Mercury Lloyds Insurance Company(1) | |
California General Underwriters Insurance Company, Inc. | Mercury County Mutual Insurance Company(2) | |
Mercury Insurance Company of Illinois | Mercury Insurance Company of Florida | |
Mercury Insurance Company of Georgia | Mercury Indemnity Company of America | |
Mercury Indemnity Company of Georgia | Workmen's Auto Insurance Company ("WAIC")(4) | |
Non-Insurance Companies | ||
Mercury Select Management Company, Inc. | AIS Management LLC | |
Mercury Insurance Services LLC | Auto Insurance Specialists LLC | |
Animas Funding LLC ("AFL")(3) | PoliSeek AIS Insurance Solutions, Inc. | |
Fannette Funding LLC ("FFL")(3) |
(1) | American Mercury Lloyds Insurance Company is not owned but is controlled by the Company through its attorney-in-fact, Mercury Select Management Company, Inc. |
(2) | Mercury County Mutual Insurance Company is not owned but is controlled by the Company through a management contract. |
(3) | Special purpose investment vehicle. |
(4) | California domiciled insurance company acquired in 2015. See Note 20. Acquisition. |
Year Ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
(Amounts in millions) | |||||||||||
Deferred policy acquisition cost amortization | $ | 555.4 | $ | 562.5 | $ | 539.2 | |||||
Net advertising expense | 37.4 | 39.6 | 44.0 |
• | The incurred loss method analyzes historical incurred case loss (case reserves plus paid losses) development to estimate ultimate losses. The Company applies development factors against current case incurred losses by accident period to calculate ultimate expected losses. The Company believes that the incurred loss method provides a reasonable basis for evaluating ultimate losses, particularly in the Company’s larger, more established lines of insurance business which have a long operating history. |
• | The paid loss method analyzes historical payment patterns to estimate the amount of losses yet to be paid. |
• | The average severity method analyzes historical loss payments and/or incurred losses divided by closed claims and/or total claims to calculate an estimated average cost per claim. From this, the expected ultimate average cost per claim can be estimated. The average severity method coupled with the claim count development method provides meaningful information regarding inflation and frequency trends that the Company believes is useful in establishing loss reserves. The claim count development method analyzes historical claim count development to estimate future incurred claim count development for current claims. The Company applies these development factors against current claim counts by accident period to calculate ultimate expected claim counts. |
• | The GLM determines an average severity for each percentile of claims that have been closed as a percentage of estimated ultimate claims. The average severities are applied to open claims to estimate the amount of losses yet to be paid. The GLM utilizes operational time, determined as a percentile of claims closed rather than a finite calendar period, which neutralizes the effect of changes in the timing of claims handling. |
December 31, | |||||||
2017 | 2016 | ||||||
(Amounts in thousands) | |||||||
Assets | |||||||
Investments | $ | 3,732,728 | $ | 3,547,560 | |||
Note receivable | 5,565 | — | |||||
Total return swaps | — | 667 | |||||
Liabilities | |||||||
Total return swaps | 1,200 | 765 | |||||
Options sold | 123 | 20 | |||||
Secured notes | — | 140,000 | |||||
Unsecured notes | 385,583 | 180,000 |
Year Ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
(Amounts in thousands) | |||||||||||
Fixed maturity securities | $ | 50,403 | $ | (56,584 | ) | $ | (39,304 | ) | |||
Equity securities | 37,486 | 23,722 | (22,988 | ) | |||||||
Short-term investments | 38 | 57 | 561 | ||||||||
Total gains (losses) | $ | 87,927 | $ | (32,805 | ) | $ | (61,731 | ) |
Year Ended December 31, | |||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015 | |||||||||||||||||||||||||||||||||
(Amounts in thousands) | |||||||||||||||||||||||||||||||||||
Gross Realized Gains | Gross Realized Losses | Net | Gross Realized Gains | Gross Realized Losses | Net | Gross Realized Gains | Gross Realized Losses | Net | |||||||||||||||||||||||||||
Fixed maturity securities | $ | 604 | $ | (2,701 | ) | $ | (2,097 | ) | $ | 3,327 | $ | (19,133 | ) | $ | (15,806 | ) | $ | 631 | $ | (495 | ) | $ | 136 | ||||||||||||
Equity securities | 20,835 | (23,048 | ) | (2,213 | ) | 29,446 | (29,945 | ) | (499 | ) | 41,305 | (58,764 | ) | (17,459 | ) | ||||||||||||||||||||
Short-term investments | 21 | (20 | ) | 1 | 6 | (530 | ) | (524 | ) | — | (1,396 | ) | (1,396 | ) |
Estimated Fair Value | |||
(Amounts in thousands) | |||
Fixed maturity securities: | |||
Due in one year or less | $ | 200,963 | |
Due after one year through five years | 532,344 | ||
Due after five years through ten years | 286,031 | ||
Due after ten years | 1,873,439 | ||
Total | $ | 2,892,777 |
Year Ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
(Amounts in thousands) | |||||||||||
Fixed maturity securities | $ | 102,790 | $ | 104,111 | $ | 108,122 | |||||
Equity securities | 18,554 | 14,629 | 14,630 | ||||||||
Short-term investments | 8,753 | 8,936 | 9,033 | ||||||||
Total investment income | $ | 130,097 | $ | 127,676 | $ | 131,785 | |||||
Less: investment expense | (5,167 | ) | (5,805 | ) | (5,486 | ) | |||||
Net investment income | $ | 124,930 | $ | 121,871 | $ | 126,299 |
Level 1 | Unadjusted quoted prices are available in active markets for identical assets or liabilities as of the reporting date. |
Level 2 | Pricing inputs are other than quoted prices in active markets, which are based on the following: |
• | Quoted prices for similar assets or liabilities in active markets; |
• | Quoted prices for identical or similar assets or liabilities in non-active markets; or |
• | Either directly or indirectly observable inputs as of the reporting date. |
Level 3 | Pricing inputs are unobservable and significant to the overall fair value measurement, and the determination of fair value requires significant management judgment or estimation. |
December 31, 2017 | |||||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
(Amounts in thousands) | |||||||||||||||
Assets | |||||||||||||||
Fixed maturity securities: | |||||||||||||||
U.S. government bonds | $ | 13,236 | $ | — | $ | — | $ | 13,236 | |||||||
Municipal securities | — | 2,556,532 | — | 2,556,532 | |||||||||||
Mortgage-backed securities and agencies | — | 27,165 | — | 27,165 | |||||||||||
Corporate securities | — | 137,542 | — | 137,542 | |||||||||||
Collateralized loan obligations | — | 105,202 | — | 105,202 | |||||||||||
Other asset-backed securities | — | 53,100 | — | 53,100 | |||||||||||
Total fixed maturity securities | 13,236 | 2,879,541 | — | 2,892,777 | |||||||||||
Equity securities: | |||||||||||||||
Common stock | 429,367 | — | 429,367 | ||||||||||||
Non-redeemable preferred stock | — | 34,869 | — | 34,869 | |||||||||||
Private equity fund | — | — | 1,481 | 1,481 | |||||||||||
Private equity fund measured at net asset value (1) | 71,523 | ||||||||||||||
Total equity securities | 429,367 | 34,869 | 1,481 | 537,240 | |||||||||||
Short-term investments: | |||||||||||||||
Short-term bonds | 29,998 | 2,020 | — | 32,018 | |||||||||||
Money market instruments | 270,693 | — | — | 270,693 | |||||||||||
Total short-term investments | 300,691 | 2,020 | — | 302,711 | |||||||||||
Other assets: | |||||||||||||||
Note receivable | — | 5,565 | — | 5,565 | |||||||||||
Total return swaps | — | — | — | — | |||||||||||
Total assets at fair value | $ | 743,294 | $ | 2,921,995 | $ | 1,481 | $ | 3,738,293 | |||||||
Liabilities | |||||||||||||||
Other liabilities: | |||||||||||||||
Total return swaps | — | 1,200 | — | 1,200 | |||||||||||
Options sold | 123 | — | — | 123 | |||||||||||
Total liabilities at fair value | $ | 123 | $ | 1,200 | $ | — | $ | 1,323 |
December 31, 2016 | |||||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
(Amounts in thousands) | |||||||||||||||
Assets | |||||||||||||||
Fixed maturity securities: | |||||||||||||||
U.S. government bonds and agencies | $ | 12,275 | $ | — | $ | — | $ | 12,275 | |||||||
Municipal securities | — | 2,449,292 | — | 2,449,292 | |||||||||||
Mortgage-backed securities | — | 39,777 | — | 39,777 | |||||||||||
Corporate securities | — | 189,688 | — | 189,688 | |||||||||||
Collateralized debt obligations | — | 86,525 | — | 86,525 | |||||||||||
Other asset-backed securities | — | 36,996 | — | 36,996 | |||||||||||
Total fixed maturity securities | 12,275 | 2,802,278 | — | 2,814,553 | |||||||||||
Equity securities: | |||||||||||||||
Common stock | 316,450 | — | — | 316,450 | |||||||||||
Non-redeemable preferred stock | — | 31,809 | — | 31,809 | |||||||||||
Private equity funds | — | — | 9,068 | 9,068 | |||||||||||
Total equity securities | 316,450 | 31,809 | 9,068 | 357,327 | |||||||||||
Short-term investments: | |||||||||||||||
Short-term bonds | 70,393 | 20,233 | — | 90,626 | |||||||||||
Money market instruments | 285,054 | — | — | 285,054 | |||||||||||
Total short-term investments | 355,447 | 20,233 | — | 375,680 | |||||||||||
Other assets: | |||||||||||||||
Total return swaps | — | 667 | — | 667 | |||||||||||
Total assets at fair value | $ | 684,172 | $ | 2,854,987 | $ | 9,068 | $ | 3,548,227 | |||||||
Liabilities | |||||||||||||||
Other liabilities: | |||||||||||||||
Total return swaps | $ | — | $ | 765 | $ | — | $ | 765 | |||||||
Options sold | 20 | — | — | 20 | |||||||||||
Total liabilities at fair value | $ | 20 | $ | 765 | $ | — | $ | 785 |
Private Equity Funds | ||||||||
Year Ended December 31, | ||||||||
2017 | 2016 | |||||||
(Amounts in thousands) | ||||||||
Beginning balance | $ | 9,068 | $ | 10,431 | ||||
Net realized gains (losses) included in earnings | 691 | (1,363 | ) | |||||
Purchases | 1,481 | — | ||||||
Sales/settlements | (9,759 | ) | — | |||||
Ending balance | $ | 1,481 | $ | 9,068 | ||||
The amount of total gains (losses) for the period included in earnings attributable to assets still held at December 31 | $ | — | $ | (1,363 | ) |
December 31, 2017 | |||||||||||||||||||
Carrying Value | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||
(Amounts in thousands) | |||||||||||||||||||
Liabilities | |||||||||||||||||||
Notes payable: | |||||||||||||||||||
Unsecured notes | $ | 371,335 | $ | 385,583 | $ | — | $ | 385,583 | $ | — |
December 31, 2016 | |||||||||||||||||||
Carrying Value | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||
(Amounts in thousands) | |||||||||||||||||||
Liabilities | |||||||||||||||||||
Notes payable: | |||||||||||||||||||
Secured notes | $ | 140,000 | $ | 140,000 | $ | — | $ | 140,000 | $ | — | |||||||||
Unsecured notes | 180,000 | 180,000 | — | 180,000 | — |
December 31, | |||||||
2017 | 2016 | ||||||
(Amounts in thousands) | |||||||
Land | $ | 18,152 | $ | 26,770 | |||
Buildings and improvements | 136,827 | 134,952 | |||||
Furniture and equipment | 118,647 | 114,156 | |||||
Capitalized software | 202,488 | 190,092 | |||||
Leasehold improvements | 9,632 | 9,369 | |||||
485,746 | 475,339 | ||||||
Less: accumulated depreciation and amortization | (340,523 | ) | (319,429 | ) | |||
Fixed assets, net | $ | 145,223 | $ | 155,910 |
December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
(Amounts in thousands) | |||||||||||
Balance, beginning of year | $ | 200,826 | $ | 201,762 | $ | 197,202 | |||||
Policy acquisition costs deferred | 552,675 | 561,610 | 543,791 | ||||||||
Amortization | (555,350 | ) | (562,546 | ) | (539,231 | ) | |||||
Balance, end of year | $ | 198,151 | $ | 200,826 | $ | 201,762 |
December 31, | ||||||||||||||
Lender | Interest Rate | Expiration | 2017 | 2016 | ||||||||||
(Amounts in thousands) | ||||||||||||||
Secured credit facility(1) | Bank of America | LIBOR plus 40 basis points | December 3, 2018 | $ | — | $ | 120,000 | |||||||
Secured loan(1) | Union Bank | LIBOR plus 40 basis points | December 3, 2017 | — | 20,000 | |||||||||
Unsecured credit facility(1) | Bank of America and Union Bank | LIBOR plus 112.5-162.5 basis points | December 3, 2019 | — | 180,000 | |||||||||
Senior unsecured notes(2) | Publicly traded | 4.40% | March 15, 2027 | 375,000 | — | |||||||||
Unsecured credit facility(3) | Bank of America and Wells Fargo Bank | LIBOR plus 112.5-162.5 basis points | March 29, 2022 | — | — | |||||||||
Total principal amount | 375,000 | 320,000 | ||||||||||||
Less unamortized discount and debt issuance costs(4) | 3,665 | — | ||||||||||||
Total | $ | 371,335 | $ | 320,000 |
(1) | On March 8, 2017, the loan and credit facility agreements were terminated and the Company repaid the total outstanding amounts with the proceeds from its public offering of $375 million of senior notes. |
(2) | On March 8, 2017, the Company completed a public debt offering issuing $375 million of senior notes. The notes are unsecured senior obligations of the Company, with a 4.4% annual coupon payable on March 15 and September 15 of each year commencing September 15, 2017. These notes mature on March 15, 2027. The Company used the proceeds from the notes to pay off amounts outstanding under the existing loan and credit facilities and for general corporate purposes. The Company incurred debt issuance costs of approximately $3.4 million, inclusive of underwriters' fees. The notes were issued at a slight discount of 99.847% of par, resulting in the effective annualized interest rate, including debt issuance costs, of approximately 4.45%. |
(3) | On March 29, 2017, the Company entered into an unsecured credit agreement that provides for revolving loans of up to $50 million and matures on March 29, 2022. The interest rates on borrowings under the credit facility are based on the Company's debt to total capital ratio and range from LIBOR plus 112.5 basis points when the ratio is under 15% to LIBOR plus 162.5 basis points when the ratio is greater than or equal to 25%. Commitment fees for the undrawn portions of the |
(4) | The unamortized discount and debt issuance costs of approximately $3.7 million are associated with the publicly traded $375 million senior unsecured notes. These are amortized to interest expense over the life of the notes, and the unamortized balance is presented in the Company's consolidated balance sheets as a direct deduction from the carrying amount of the debt. The unamortized debt issuance cost of approximately $0.2 million associated with the $50 million five-year unsecured revolving credit facility maturing on March 29, 2022 is included in other assets in the Company's consolidated balance sheets and amortized to interest expense over the term of the credit facility. |
Maturity | Amounts | |||
(in thousands) | ||||
2018 | $ | — | ||
2019 | — | |||
2020 | — | |||
2021 | — | |||
2022 | — | |||
Thereafter | 375,000 | |||
Total | $ | 375,000 |
Asset Derivatives | Liability Derivatives | ||||||||||||||
December 31, 2017 | December 31, 2016 | December 31, 2017 | December 31, 2016 | ||||||||||||
(Amounts in thousands) | |||||||||||||||
Total return swaps - Other assets | $ | — | $ | 667 | $ | — | $ | — | |||||||
Options sold - Other liabilities | — | — | 123 | 20 | |||||||||||
Total return swaps - Other liabilities | — | — | 1,200 | 765 | |||||||||||
Total derivatives | $ | — | $ | 667 | $ | 1,323 | $ | 785 |
(Losses) Gains Recognized in Income | |||||||||||
Year Ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
(Amounts in thousands) | |||||||||||
Total return swaps - Net realized investment (losses) gains | $ | (2,137 | ) | $ | 11,533 | $ | (6,438 | ) | |||
Options sold - Net realized investment gains | 2,291 | 3,846 | 3,081 | ||||||||
Total | $ | 154 | $ | 15,379 | $ | (3,357 | ) |
Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Useful Lives | ||||||||||
(Amounts in thousands) | (in years) | ||||||||||||
As of December 31, 2017 | |||||||||||||
Customer relationships | $ | 52,890 | $ | (43,617 | ) | $ | 9,273 | 11 | |||||
Trade names | 15,400 | (5,775 | ) | 9,625 | 24 | ||||||||
Technology | 4,300 | (3,870 | ) | 430 | 10 | ||||||||
Insurance license | 1,400 | — | 1,400 | Indefinite | |||||||||
Total intangible assets, net | $ | 73,990 | $ | (53,262 | ) | $ | 20,728 | ||||||
As of December 31, 2016 | |||||||||||||
Customer relationships | $ | 52,430 | $ | (39,332 | ) | $ | 13,098 | 11 | |||||
Trade names | 15,400 | (5,133 | ) | 10,267 | 24 | ||||||||
Technology | 4,300 | (3,440 | ) | 860 | 10 | ||||||||
Insurance license | 1,400 | — | 1,400 | Indefinite | |||||||||
Total intangible assets, net | $ | 73,530 | $ | (47,905 | ) | $ | 25,625 |
Year Ending December 31, | Amortization Expense | ||
(Amounts in thousands) | |||
2018 | $ | 5,427 | |
2019 | 4,997 | ||
2020 | 850 | ||
2021 | 830 | ||
2022 | 806 | ||
Thereafter | 6,418 | ||
Total | $ | 19,328 |
Year Ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
(Amounts in thousands) | |||||||||||
Federal | |||||||||||
Current | $ | 10,898 | $ | 17,444 | $ | 21,942 | |||||
Deferred | 10,934 | (21,947 | ) | (25,594 | ) | ||||||
$ | 21,832 | $ | (4,503 | ) | $ | (3,652 | ) | ||||
State | |||||||||||
Current | $ | 955 | $ | 2,239 | $ | 943 | |||||
Deferred | (579 | ) | (56 | ) | (1,203 | ) | |||||
$ | 376 | $ | 2,183 | $ | (260 | ) | |||||
Total | |||||||||||
Current | $ | 11,853 | $ | 19,683 | $ | 22,885 | |||||
Deferred | 10,355 | (22,003 | ) | (26,797 | ) | ||||||
Total | $ | 22,208 | $ | (2,320 | ) | $ | (3,912 | ) |
Year Ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
(Amounts in thousands) | |||||||||||
Computed tax expense at 35% | $ | 58,480 | $ | 24,753 | $ | 24,699 | |||||
Tax-exempt interest income | (26,038 | ) | (26,197 | ) | (26,993 | ) | |||||
Dividends received deduction | (2,296 | ) | (2,303 | ) | (1,613 | ) | |||||
State tax expense | 158 | 1,907 | (287 | ) | |||||||
Nondeductible expenses | 348 | 303 | 575 | ||||||||
Cumulative impact from change in tax rate | (11,449 | ) | — | — | |||||||
Reduction of AMT credit carryforward due to sequestration | 4,088 | — | — | ||||||||
Other, net | (1,083 | ) | (783 | ) | (293 | ) | |||||
Income tax expense (benefit) | $ | 22,208 | $ | (2,320 | ) | $ | (3,912 | ) |
December 31, | |||||||
2017 | 2016 | ||||||
(Amounts in thousands) | |||||||
Deferred tax assets: | |||||||
20% of net unearned premiums | $ | 47,110 | $ | 77,104 | |||
Discounting of loss reserves and salvage and subrogation recoverable for tax purposes | 6,451 | 9,864 | |||||
Write-down of impaired investments | 387 | 726 | |||||
Tax credit carryforwards | 230 | 47,238 | |||||
Expense accruals | 6,192 | 11,090 | |||||
Other deferred tax assets | 3,174 | 8,828 | |||||
Total gross deferred tax assets | 63,544 | 154,850 | |||||
Deferred tax liabilities: | |||||||
Deferred policy acquisition costs | (41,612 | ) | (70,289 | ) | |||
Tax liability on net unrealized gain on securities carried at fair value | (27,574 | ) | (15,612 | ) | |||
Tax depreciation in excess of book depreciation | (5,686 | ) | (10,446 | ) | |||
Undistributed earnings of insurance subsidiaries | (3,907 | ) | (3,985 | ) | |||
Tax amortization in excess of book amortization | (2,280 | ) | (3,030 | ) | |||
Other deferred tax liabilities | (5,417 | ) | (6,211 | ) | |||
Total gross deferred tax liabilities | (86,476 | ) | (109,573 | ) | |||
Net deferred tax (liabilities) assets | $ | (22,932 | ) | $ | 45,277 |
December 31, | |||||||
2017 | 2016 | ||||||
(Amounts in thousands) | |||||||
Balance at January 1 | $ | 12,954 | $ | 12,165 | |||
Additions (reductions) based on tax positions related to: | |||||||
Current year | 85 | 688 | |||||
Prior years | (3,365 | ) | 101 | ||||
Additions (reductions) as a result of lapse of the applicable statute of limitations | — | — | |||||
Balance at December 31 | $ | 9,674 | $ | 12,954 |
Year Ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
(Amounts in thousands) | |||||||||||
Gross reserves at January 1 | $ | 1,290,248 | $ | 1,146,688 | $ | 1,091,797 | |||||
Less reinsurance recoverables on unpaid losses | (13,161 | ) | (14,253 | ) | (14,192 | ) | |||||
Net reserves at January 1 | 1,277,087 | 1,132,435 | 1,077,605 | ||||||||
Acquisition of WAIC reserves | — | — | 18,677 | ||||||||
Incurred losses and loss adjustment expenses related to: | |||||||||||
Current year | 2,390,453 | 2,269,769 | 2,132,837 | ||||||||
Prior years | 54,431 | 85,369 | 12,658 | ||||||||
Total incurred losses and loss adjustment expenses | 2,444,884 | 2,355,138 | 2,145,495 | ||||||||
Loss and loss adjustment expense payments related to: | |||||||||||
Current year | 1,550,789 | 1,508,362 | 1,455,245 | ||||||||
Prior years | 724,570 | 702,124 | 654,097 | ||||||||
Total payments | 2,275,359 | 2,210,486 | 2,109,342 | ||||||||
Net reserves at December 31 | 1,446,612 | 1,277,087 | 1,132,435 | ||||||||
Reinsurance recoverables on unpaid losses | 64,001 | 13,161 | 14,253 | ||||||||
Gross reserves at December 31 | $ | 1,510,613 | $ | 1,290,248 | $ | 1,146,688 |
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance (Automobile Insurance) | As of December 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||
Total of Incurred But Not Reported Liabilities Plus Expected Development on Reported Claims | Cumulative Number of Reported Claims | |||||||||||||||||||||||||||||||||||||||||||||
Accident Year | For the Years Ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||
2008(1) | 2009(1) | 2010(1) | 2011(1) | 2012(1) | 2013(1) | 2014(1) | 2015(1) | 2016(1) | 2017 | |||||||||||||||||||||||||||||||||||||
(Amounts in thousands) | (Amounts in thousands) | |||||||||||||||||||||||||||||||||||||||||||||
2008 | $ | 1,505,732 | $ | 1,440,301 | $ | 1,442,691 | $ | 1,455,858 | $ | 1,461,084 | $ | 1,463,659 | $ | 1,465,623 | $ | 1,466,108 | $ | 1,466,137 | $ | 1,466,687 | $ | 55 | 199 | |||||||||||||||||||||||
2009 | 1,372,833 | 1,349,025 | 1,361,116 | 1,361,652 | 1,365,551 | 1,371,779 | 1,372,694 | 1,372,259 | 1,371,812 | 82 | 186 | |||||||||||||||||||||||||||||||||||
2010 | 1,367,547 | 1,357,750 | 1,364,307 | 1,374,638 | 1,379,336 | 1,381,056 | 1,386,105 | 1,388,077 | 158 | 184 | ||||||||||||||||||||||||||||||||||||
2011 | 1,343,919 | 1,367,000 | 1,380,557 | 1,388,363 | 1,393,878 | 1,398,518 | 1,405,112 | 9,367 | 181 | |||||||||||||||||||||||||||||||||||||
2012 | 1,424,754 | 1,408,222 | 1,409,104 | 1,414,878 | 1,426,735 | 1,436,034 | 1,756 | 181 | ||||||||||||||||||||||||||||||||||||||
2013 | 1,448,567 | 1,431,058 | 1,447,881 | 1,458,421 | 1,464,071 | 4,011 | 185 | |||||||||||||||||||||||||||||||||||||||
2014 | 1,467,175 | 1,454,366 | 1,473,545 | 1,486,322 | 12,959 | 180 | ||||||||||||||||||||||||||||||||||||||||
2015 | 1,551,105 | 1,588,443 | 1,610,839 | 40,444 | 170 | |||||||||||||||||||||||||||||||||||||||||
2016 | 1,672,853 | 1,669,642 | 102,672 | 154 | ||||||||||||||||||||||||||||||||||||||||||
2017 | 1,703,857 | 347,296 | 140 | |||||||||||||||||||||||||||||||||||||||||||
Total | $ | 15,002,453 |
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance (Automobile Insurance) | ||||||||||||||||||||||||||||||||||||||||
For the Years Ended December 31, | ||||||||||||||||||||||||||||||||||||||||
Accident Year | 2008(1) | 2009(1) | 2010(1) | 2011(1) | 2012(1) | 2013(1) | 2014(1) | 2015(1) | 2016(1) | 2017 | ||||||||||||||||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||||||||||||||||||||||||
2008 | $ | 992,844 | $ | 1,226,787 | $ | 1,345,354 | $ | 1,418,274 | $ | 1,450,172 | $ | 1,459,216 | $ | 1,463,384 | $ | 1,464,763 | $ | 1,465,832 | $ | 1,466,704 | ||||||||||||||||||||
2009 | 913,340 | 1,137,807 | 1,260,424 | 1,326,439 | 1,355,210 | 1,363,526 | 1,370,564 | 1,371,956 | 1,371,933 | |||||||||||||||||||||||||||||||
2010 | 908,954 | 1,143,984 | 1,268,142 | 1,335,871 | 1,365,464 | 1,375,799 | 1,384,333 | 1,387,835 | ||||||||||||||||||||||||||||||||
2011 | 926,983 | 1,152,459 | 1,277,808 | 1,347,082 | 1,378,920 | 1,391,101 | 1,394,684 | |||||||||||||||||||||||||||||||||
2012 | 955,647 | 1,194,648 | 1,304,511 | 1,372,828 | 1,409,911 | 1,422,705 | ||||||||||||||||||||||||||||||||||
2013 | 974,445 | 1,217,906 | 1,340,724 | 1,413,999 | 1,447,004 | |||||||||||||||||||||||||||||||||||
2014 | 967,481 | 1,231,413 | 1,358,472 | 1,432,472 | ||||||||||||||||||||||||||||||||||||
2015 | 1,040,253 | 1,336,223 | 1,466,368 | |||||||||||||||||||||||||||||||||||||
2016 | 1,094,006 | 1,395,199 | ||||||||||||||||||||||||||||||||||||||
2017 | 1,076,079 | |||||||||||||||||||||||||||||||||||||||
Total | $ | 13,860,983 | ||||||||||||||||||||||||||||||||||||||
All outstanding liabilities before 2008, net of reinsurance | (169 | ) | ||||||||||||||||||||||||||||||||||||||
Loss and allocated loss adjustment expense reserves, net of reinsurance | $ | 1,141,300 |
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance (Homeowners' Insurance) | As of December 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||
Total of Incurred But Not Reported Liabilities Plus Expected Development on Reported Claims | Cumulative Number of Reported Claims | |||||||||||||||||||||||||||||||||||||||||||||
Accident Year | For the Years Ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||
2008(1) | 2009(1) | 2010(1) | 2011(1) | 2012(1) | 2013(1) | 2014(1) | 2015(1) | 2016(1) | 2017 | |||||||||||||||||||||||||||||||||||||
(Amounts in thousands) | (Amounts in thousands) | |||||||||||||||||||||||||||||||||||||||||||||
2008 | $ | 146,486 | $ | 139,549 | $ | 138,605 | $ | 139,142 | $ | 138,190 | $ | 138,803 | $ | 139,149 | $ | 139,156 | $ | 139,216 | $ | 139,188 | $ | — | 16 | |||||||||||||||||||||||
2009 | 135,889 | 135,000 | 131,680 | 133,087 | 133,121 | 134,718 | 134,597 | 134,478 | 134,359 | 26 | 17 | |||||||||||||||||||||||||||||||||||
2010 | 165,727 | 157,566 | 160,983 | 160,472 | 160,206 | 160,015 | 159,608 | 159,662 | 117 | 21 | ||||||||||||||||||||||||||||||||||||
2011 | 167,414 | 170,623 | 170,052 | 169,600 | 169,390 | 169,621 | 170,126 | 234 | 23 | |||||||||||||||||||||||||||||||||||||
2012 | 196,063 | 188,010 | 190,376 | 191,548 | 192,057 | 191,804 | 428 | 25 | ||||||||||||||||||||||||||||||||||||||
2013 | 191,903 | 188,915 | 188,026 | 186,795 | 187,165 | 524 | 23 | |||||||||||||||||||||||||||||||||||||||
2014 | 199,298 | 202,621 | 203,218 | 202,513 | 1,330 | 25 | ||||||||||||||||||||||||||||||||||||||||
2015 | 234,800 | 234,881 | 233,501 | 4,368 | 24 | |||||||||||||||||||||||||||||||||||||||||
2016 | 250,691 | 259,489 | 9,995 | 24 | ||||||||||||||||||||||||||||||||||||||||||
2017 | 309,491 | 47,502 | 28 | |||||||||||||||||||||||||||||||||||||||||||
Total | $ | 1,987,298 |
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance (Homeowners' Insurance) | ||||||||||||||||||||||||||||||||||||||||
For the Years Ended December 31, | ||||||||||||||||||||||||||||||||||||||||
Accident Year | 2008(1) | 2009(1) | 2010(1) | 2011(1) | 2012(1) | 2013(1) | 2014(1) | 2015(1) | 2016(1) | 2017 | ||||||||||||||||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||||||||||||||||||||||||
2008 | $ | 86,954 | $ | 122,239 | $ | 129,821 | $ | 135,500 | $ | 137,284 | $ | 138,137 | $ | 138,680 | $ | 138,809 | $ | 138,922 | $ | 138,963 | ||||||||||||||||||||
2009 | 86,034 | 119,306 | 126,591 | 130,928 | 132,180 | 134,381 | 134,378 | 134,301 | 134,229 | |||||||||||||||||||||||||||||||
2010 | 95,057 | 137,628 | 149,084 | 155,191 | 156,853 | 158,053 | 158,943 | 159,268 | ||||||||||||||||||||||||||||||||
2011 | 111,909 | 153,845 | 162,870 | 166,375 | 167,806 | 168,621 | 168,914 | |||||||||||||||||||||||||||||||||
2012 | 128,618 | 175,029 | 182,756 | 188,121 | 190,373 | 190,649 | ||||||||||||||||||||||||||||||||||
2013 | 133,528 | 174,295 | 180,858 | 183,860 | 185,168 | |||||||||||||||||||||||||||||||||||
2014 | 139,615 | 186,996 | 194,605 | 198,758 | ||||||||||||||||||||||||||||||||||||
2015 | 163,196 | 213,994 | 224,178 | |||||||||||||||||||||||||||||||||||||
2016 | 173,537 | 234,215 | ||||||||||||||||||||||||||||||||||||||
2017 | 217,900 | |||||||||||||||||||||||||||||||||||||||
Total | $ | 1,852,242 | ||||||||||||||||||||||||||||||||||||||
All outstanding liabilities before 2008, net of reinsurance | 2,141 | |||||||||||||||||||||||||||||||||||||||
Loss and allocated loss adjustment expense reserves, net of reinsurance | $ | 137,195 |
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance | ||||||||||||||||||||||||||||||
Years | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | ||||||||||||||||||||
Automobile insurance | 65.8 | % | 17.1 | % | 8.5 | % | 5 | % | 2.3 | % | 0.7 | % | 0.4 | % | 0.1 | % | — | % | 0.1 | % |
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance | ||||||||||||||||||||||||||||||
Years | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | ||||||||||||||||||||
Homeowners insurance | 66.5 | % | 23.9 | % | 4.8 | % | 2.7 | % | 1.0 | % | 0.7 | % | 0.3 | % | 0.1 | % | — | % | — | % |
December 31, 2017 | ||||
(Amounts in thousands) | ||||
Net outstanding liabilities | ||||
Automobile insurance | $ | 1,141,300 | ||
Homeowners' insurance | 137,195 | |||
WAIC automobile insurance | 12,076 | |||
Other short-duration insurance lines | 69,327 | |||
Loss and loss adjustment expense reserves, net of reinsurance recoverables on unpaid losses | 1,359,898 | |||
Reinsurance recoverables on unpaid losses | ||||
Automobile insurance | 10,004 | |||
Homeowners' insurance | 53,323 | |||
Other short-duration insurance lines | 674 | |||
Total reinsurance recoverables on unpaid losses | 64,001 | |||
Insurance lines other than short-duration | 1,183 | |||
Unallocated claims adjustment expenses | 85,531 | |||
86,714 | ||||
Total gross loss and loss adjustment expense reserves | $ | 1,510,613 |
Year Ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
(Amounts in thousands, except per share data) | |||||||||||
Total paid | $ | 137,886 | $ | 137,201 | $ | 136,386 | |||||
Per share paid | $ | 2.4925 | $ | 2.4825 | $ | 2.4725 |
Year Ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
(Amounts in thousands) | |||||||||||
Statutory net income(1) | $ | 117,376 | $ | 82,359 | $ | 123,984 | |||||
Statutory capital and surplus | $ | 1,589,226 | $ | 1,441,571 | $ | 1,451,950 |
(1) | Statutory net income reflects differences from GAAP net income, including changes in the fair value of the investment portfolio as a result of the application of the fair value option. |
Year Ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
(Amounts in thousands) | |||||||||||
Cash received from stock option exercises | $ | 2,162 | $ | 1,632 | 2,111 | ||||||
Compensation cost, all share-based awards | 60 | 142 | 5,208 | ||||||||
Excess tax (expense) benefit, all share-based awards | (8 | ) | 913 | 27 |
2013 | |
Weighted-average grant-date fair value | $7.11 |
Expected volatility | 33.16% - 33.18% |
Weighted-average expected volatility | 33.17% |
Risk-free interest rate | 0.88% - 1.60% |
Expected dividend yield | 5.40% - 5.76% |
Expected term in months | 72 |
Shares | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value (in 000’s) | |||||||||
Outstanding at January 1, 2017 | 85,500 | $ | 47.52 | |||||||||
Granted | — | — | ||||||||||
Exercised | (43,000) | $ | 50.28 | |||||||||
Canceled or expired | — | $ | — | |||||||||
Outstanding at December 31, 2017 | 42,500 | $ | 44.72 | 3.0 | $ | 371 | ||||||
Exercisable at December 31, 2017 | 42,500 | $ | 44.72 | 3.0 | $ | 371 |
Options Outstanding | Options Exercisable | ||||||||||||
Range of Exercise Prices | Number of Options | Weighted-Average Remaining Contractual Life (Years) | Weighted- Average Exercise Price | Number of Options | Weighted- Average Exercise Price | ||||||||
$33.61-$45.30 | 27,500 | 4.5 | $ | 42.64 | 27,500 | $ | 42.64 | ||||||
$47.61-$50.35 | 15,000 | 0.3 | $ | 48.52 | 15,000 | $ | 48.52 |
Grant Year | |||||
2016 | 2015 | ||||
Three-year performance period ending December 31, | 2018 | 2017 | |||
Vesting shares, target (net of forfeited) | 83,250 | 85,750 | |||
Vesting shares, maximum (net of forfeited) | 156,094 | 160,781 |
Year Ended December 31, | ||||||||||||||||||||
2017 | 2016 | 2015 | ||||||||||||||||||
Shares | Weighted- Average Fair Value per Share | Shares | Weighted- Average Fair Value per Share | Shares | Weighted- Average Fair Value per Share | |||||||||||||||
Outstanding at January 1 | 271,000 | $ | 51.09 | 263,250 | $ | 45.94 | 167,000 | $ | 41.15 | |||||||||||
Granted | — | — | 95,750 | $ | 53.49 | 100,250 | $ | 53.80 | ||||||||||||
Vested | (82,000 | ) | $ | 45.17 | (78,500 | ) | $ | 36.82 | — | — | ||||||||||
Forfeited/Canceled | (20,000 | ) | $ | 53.62 | (9,500) | $ | 50.46 | (4,000) | $ | 43.10 | ||||||||||
Expired | — | — | — | — | — | — | ||||||||||||||
Outstanding at December 31 | 169,000 | $ | 53.66 | 271,000 | $ | 51.09 | 263,250 | $ | 45.94 |
Year Ended December 31, | ||||||||||||||||||||||||||||||||
2017 | 2016 | 2015 | ||||||||||||||||||||||||||||||
Income (Numerator) | Weighted Shares (Denominator) | Per-Share Amount | Income (Numerator) | Weighted Shares (Denominator) | Per-Share Amount | Income (Numerator) | Weighted Shares (Denominator) | Per-Share Amount | ||||||||||||||||||||||||
(Amounts and numbers in thousands, except per-share data) | ||||||||||||||||||||||||||||||||
Basic EPS | ||||||||||||||||||||||||||||||||
Income available to common stockholders | $ | 144,877 | 55,316 | $ | 2.62 | $ | 73,044 | 55,249 | $ | 1.32 | $ | 74,479 | 55,157 | $ | 1.35 | |||||||||||||||||
Effect of dilutive securities: | ||||||||||||||||||||||||||||||||
Options | — | 11 | — | 11 | — | 15 | ||||||||||||||||||||||||||
RSUs | — | — | — | 42 | — | 37 | ||||||||||||||||||||||||||
Diluted EPS | ||||||||||||||||||||||||||||||||
Income available to common stockholders after assumed conversions | $ | 144,877 | 55,327 | $ | 2.62 | $ | 73,044 | 55,302 | $ | 1.32 | $ | 74,479 | 55,209 | $ | 1.35 |
Year Ending December 31, | Operating Leases | ||
(Amounts in thousands) | |||
2018 | $ | 10,818 | |
2019 | 8,024 | ||
2020 | 5,791 | ||
2021 | 3,855 | ||
2022 | 2,769 | ||
Thereafter | 673 |
Quarter Ended | ||||||||||||||||
March 31 | June 30 | September 30 | December 31 | |||||||||||||
(Amounts in thousands, except per share data) | ||||||||||||||||
2017 | ||||||||||||||||
Net premiums earned | $ | 789,770 | $ | 797,666 | $ | 801,205 | $ | 806,796 | ||||||||
Change in fair value of financial instruments pursuant to the fair value option | 21,857 | 20,275 | 17,608 | 28,065 | ||||||||||||
Income before income taxes | 30,599 | 68,752 | 58,247 | 9,487 | ||||||||||||
Net income (loss) | 26,980 | 51,633 | 46,485 | 19,779 | ||||||||||||
Basic earnings per share (1) | 0.49 | 0.93 | 0.84 | 0.36 | ||||||||||||
Diluted earnings per share (1) | 0.49 | 0.93 | 0.84 | 0.36 | ||||||||||||
Dividends paid per share | 0.6225 | 0.6225 | 0.6225 | 0.6250 | ||||||||||||
2016 | ||||||||||||||||
Net premiums earned | $ | 767,085 | $ | 779,321 | $ | 790,850 | $ | 794,517 | ||||||||
Change in fair value of financial instruments pursuant to the fair value option | 18,531 | 37,127 | (21,132 | ) | (67,332 | ) | ||||||||||
Income before income taxes | 26,034 | 64,335 | 31,625 | (51,270 | ) | |||||||||||
Net income (loss) | 23,323 | 48,873 | 26,930 | (26,082 | ) | |||||||||||
Basic earnings per share (1) | 0.42 | 0.88 | 0.49 | (0.47 | ) | |||||||||||
Diluted earnings per share (1) | 0.42 | 0.88 | 0.49 | (0.47 | ) | |||||||||||
Dividends paid per share | 0.6200 | 0.6200 | 0.6200 | 0.6225 |
(1) | The basic and diluted earnings per share do not sum due to rounding. |
December 31, 2017 | December 31, 2016 | December 31, 2015 | |||||||||||||||||||||||||||||||||
Property & Casualty | Other | Total | Property & Casualty | Other | Total | Property & Casualty | Other | Total | |||||||||||||||||||||||||||
(Amounts in millions) | |||||||||||||||||||||||||||||||||||
Net premiums earned | $ | 3,160.9 | $ | 34.5 | $ | 3,195.4 | $ | 3,089.9 | $ | 41.9 | $ | 3,131.8 | $ | 2,906.6 | $ | 51.3 | $ | 2,957.9 | |||||||||||||||||
Less: | |||||||||||||||||||||||||||||||||||
Losses and loss adjustment expenses | 2,427.8 | 17.1 | 2,444.9 | 2,333.2 | 21.9 | 2,355.1 | 2,117.3 | 28.2 | 2,145.5 | ||||||||||||||||||||||||||
Underwriting expenses | 773.1 | 15.6 | 788.7 | 780.4 | 17.5 | 797.9 | 770.0 | 20.0 | 790.0 | ||||||||||||||||||||||||||
Underwriting (loss) gain | (40.0 | ) | 1.8 | (38.2 | ) | (23.7 | ) | 2.5 | (21.2 | ) | 19.3 | 3.1 | 22.4 | ||||||||||||||||||||||
Investment income | 124.9 | 121.9 | 126.3 | ||||||||||||||||||||||||||||||||
Net realized investment gains (losses) | 83.7 | (34.3 | ) | (83.8 | ) | ||||||||||||||||||||||||||||||
Other income | 11.9 | 8.3 | 8.9 | ||||||||||||||||||||||||||||||||
Interest expense | (15.2 | ) | (4.0 | ) | (3.2 | ) | |||||||||||||||||||||||||||||
Pre-tax income | $ | 167.1 | $ | 70.7 | $ | 70.6 | |||||||||||||||||||||||||||||
Net income | $ | 144.9 | $ | 73.0 | $ | 74.5 |
December 31, 2017 | December 31, 2016 | December 31, 2015 | |||||||||||||||||||||||||||||||||
Property & Casualty | Other | Total | Property & Casualty | Other | Total | Property & Casualty | Other | Total | |||||||||||||||||||||||||||
(Amounts in millions) | |||||||||||||||||||||||||||||||||||
Private passenger automobile | $ | 2,473.8 | $ | — | $ | 2,473.8 | $ | 2,435.7 | $ | — | $ | 2,435.7 | $ | 2,308.6 | $ | — | $ | 2,308.6 | |||||||||||||||||
Homeowners | 431.6 | — | 431.6 | 414.0 | — | 414.0 | 379.7 | — | 379.7 | ||||||||||||||||||||||||||
Commercial automobile | 171.9 | — | 171.9 | 161.3 | — | 161.3 | 144.4 | — | 144.4 | ||||||||||||||||||||||||||
Other | 83.6 | 34.5 | 118.1 | 78.9 | 41.9 | 120.8 | 73.9 | 51.3 | 125.2 | ||||||||||||||||||||||||||
Net premiums earned | $ | 3,160.9 | $ | 34.5 | $ | 3,195.4 | $ | 3,089.9 | $ | 41.9 | 3,131.8 | $ | 2,906.6 | $ | 51.3 | $ | 2,957.9 | ||||||||||||||||||
Private passenger automobile | $ | 2,480.0 | $ | — | $ | 2,480.0 | $ | 2,452.7 | $ | — | $ | 2,452.7 | $ | 2,345.8 | $ | — | $ | 2,345.8 | |||||||||||||||||
Homeowners | 469.9 | — | 469.9 | 436.9 | — | 436.9 | 402.2 | — | 402.2 | ||||||||||||||||||||||||||
Commercial automobile | 178.2 | — | 178.2 | 166.1 | — | 166.1 | 153.5 | — | 153.5 | ||||||||||||||||||||||||||
Other | 92.9 | 27.9 | 120.8 | 89.0 | 27.3 | 116.3 | 81.6 | 29.8 | 111.4 | ||||||||||||||||||||||||||
Direct premiums written | $ | 3,221.0 | $ | 27.9 | $ | 3,248.9 | $ | 3,144.7 | $ | 27.3 | $ | 3,172.0 | $ | 2,983.1 | $ | 29.8 | $ | 3,012.9 |
Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure |
Item 9A. | Controls and Procedures |
Item 9B. | Other Information |
Item 10. | Directors, Executive Officers, and Corporate Governance |
Item 11. | Executive Compensation |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
Item 13. | Certain Relationships and Related Transactions, and Director Independence |
Item 14. | Principal Accounting Fees and Services |
Item 15. | Exhibits and Financial Statement Schedules |
Form 10-K Exhibit No. | Description of Exhibit | If Incorporated by Reference, Documents with Which Exhibit was Previously Filed with the SEC |
4.1 | Shareholders’ Agreement dated as of October 7, 1985 among the Company, George Joseph and Gloria Joseph. | This document was filed as an exhibit to Registrant’s Registration Statement on Form S-1, File No. 33-899, and is incorporated herein by this reference. (Not available on the SEC website. Filed prior to the SEC Edgar filing mandate). |
10.1* | Profit Sharing Plan, as Amended and Restated as of March 11, 1994. | This document was filed as an exhibit to Registrant’s Form 10-K for the fiscal year ended December 31, 1993, and is incorporated herein by this reference. (Not available on the SEC website. Filed prior to the SEC Edgar filing mandate). |
10.2* | Amendment 1994-I to the Mercury General Corporation Profit Sharing Plan. | This document was filed as an exhibit to Registrant’s Form 10-K for the fiscal year ended December 31, 1994, and is incorporated herein by this reference. (Not available on the SEC website. Filed prior to the SEC Edgar filing mandate). |
10.3* | Amendment 1994-II to the Mercury General Corporation Profit Sharing Plan. | This document was filed as an exhibit to Registrant’s Form 10-K for the fiscal year ended December 31, 1994, and is incorporated herein by this reference. (Not available on the SEC website. Filed prior to the SEC Edgar filing mandate). |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
* | Denotes management contract or compensatory plan or arrangement. |
MERCURY GENERAL CORPORATION | |
BY | /S/ GABRIEL TIRADOR |
Gabriel Tirador | |
President and Chief Executive Officer |
Signature | Title | Date | |||
/S/ GEORGE JOSEPH George Joseph | Chairman of the Board | February 8, 2018 | |||
/S/ GABRIEL TIRADOR Gabriel Tirador | President and Chief Executive Officer and Director (Principal Executive Officer) | February 8, 2018 | |||
/S/ THEODORE R. STALICK Theodore R. Stalick | Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | February 8, 2018 | |||
/S/ MICHAEL D. CURTIUS Michael D. Curtius | Director | February 8, 2018 | |||
/S/ JAMES G. ELLIS James G. Ellis | Director | February 8, 2018 | |||
/S/ JOSHUA E. LITTLE Joshua E. Little | Director | February 8, 2018 | |||
/S/ MARTHA E. MARCON Martha E. Marcon | Director | February 8, 2018 | |||
MERCURY GENERAL CORPORATION AND SUBSIDIARIES SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES DECEMBER 31, 2017 | |||||||||||
Type of Investment | Cost | Fair Value | Amounts in the Balance Sheet | ||||||||
(Amounts in thousands) | |||||||||||
Fixed maturity securities: | |||||||||||
U.S. government bonds | $ | 13,355 | $ | 13,236 | $ | 13,236 | |||||
Municipal securities | 2,490,150 | 2,556,532 | 2,556,532 | ||||||||
Mortgage-backed securities | 26,454 | 27,165 | 27,165 | ||||||||
Corporate securities | 136,013 | 137,542 | 137,542 | ||||||||
Collateralized loan obligations | 104,323 | 105,202 | 105,202 | ||||||||
Other asset-backed securities | 52,935 | 53,100 | 53,100 | ||||||||
Total fixed maturity securities | 2,823,230 | 2,892,777 | 2,892,777 | ||||||||
Equity securities: | |||||||||||
Common stock | 368,619 | 429,367 | 429,367 | ||||||||
Non-redeemable preferred stock | 34,429 | 34,869 | 34,869 | ||||||||
Private equity fund | 1,481 | 1,481 | 1,481 | ||||||||
Private equity fund measured at net asset value (1) | 69,668 | 71,523 | 71,523 | ||||||||
Total equity securities | 474,197 | 537,240 | 537,240 | ||||||||
Short-term investments | 302,693 | 302,711 | 302,711 | ||||||||
Total investments | $ | 3,600,120 | $ | 3,732,728 | $ | 3,732,728 |
(1) | The fair value is measured using the NAV practical expedient. See Note 4. Fair Value Measurements of the Notes to Consolidated Financial Statements for additional information. |
MERCURY GENERAL CORPORATION AND SUBSIDIARIES SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES DECEMBER 31, 2016 | |||||||||||
Type of Investment | Cost | Fair Value | Amounts in the Balance Sheet | ||||||||
(Amounts in thousands) | |||||||||||
Fixed maturity securities: | |||||||||||
U.S. government bonds and agencies | $ | 12,288 | $ | 12,275 | $ | 12,275 | |||||
Municipal securities | 2,432,181 | 2,449,292 | 2,449,292 | ||||||||
Mortgage-backed securities | 39,082 | 39,777 | 39,777 | ||||||||
Corporate securities | 189,780 | 189,688 | 189,688 | ||||||||
Collateralized loan obligations | 85,429 | 86,525 | 86,525 | ||||||||
Other asset-backed securities | 36,650 | 36,996 | 36,996 | ||||||||
Total fixed maturity securities | 2,795,410 | 2,814,553 | 2,814,553 | ||||||||
Equity securities: | |||||||||||
Common stock | 286,503 | 316,450 | 316,450 | ||||||||
Non-redeemable preferred stock | 32,436 | 31,809 | 31,809 | ||||||||
Private equity funds | 12,831 | 9,068 | 9,068 | ||||||||
Total equity securities | 331,770 | 357,327 | 357,327 | ||||||||
Short-term investments | 375,700 | 375,680 | 375,680 | ||||||||
Total investments | $ | 3,502,880 | $ | 3,547,560 | $ | 3,547,560 |
MERCURY GENERAL CORPORATION CONDENSED FINANCIAL INFORMATION OF REGISTRANT BALANCE SHEETS | |||||||
December 31, | |||||||
2017 | 2016 | ||||||
(Amounts in thousands) | |||||||
ASSETS | |||||||
Investments, at fair value: | |||||||
Fixed maturity securities (amortized cost $0; $1,609) | $ | — | $ | 1,605 | |||
Equity securities (cost $113,216; $113,943) | 141,227 | 122,717 | |||||
Short-term investments (cost $21,233; $629) | 21,231 | 629 | |||||
Investment in subsidiaries | 1,976,400 | 1,810,663 | |||||
Total investments | 2,138,858 | 1,935,614 | |||||
Cash | 8,475 | 11,786 | |||||
Accrued investment income | 178 | 189 | |||||
Amounts receivable from affiliates | 231 | 226 | |||||
Current income taxes | 8,857 | — | |||||
Deferred income taxes | — | 2,702 | |||||
Income tax receivable from affiliates | 6,338 | 35,237 | |||||
Other assets | 663 | 414 | |||||
Total assets | $ | 2,163,600 | $ | 1,986,168 | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
Notes payable | $ | 371,335 | $ | 180,000 | |||
Accounts payable and accrued expenses | — | 348 | |||||
Amounts payable to affiliates | 507 | 36 | |||||
Income tax payable to affiliates | 17,213 | 39,539 | |||||
Current income taxes | — | 10,200 | |||||
Deferred income taxes | 8,242 | — | |||||
Other liabilities | 4,916 | 3,643 | |||||
Total liabilities | 402,213 | 233,766 | |||||
Commitments and contingencies | |||||||
Shareholders’ equity: | |||||||
Common stock | 97,523 | 95,529 | |||||
Retained earnings | 1,663,864 | 1,656,873 | |||||
Total shareholders’ equity | 1,761,387 | 1,752,402 | |||||
Total liabilities and shareholders’ equity | $ | 2,163,600 | $ | 1,986,168 |
MERCURY GENERAL CORPORATION CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF OPERATIONS | |||||||||||
Year Ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
(Amounts in thousands) | |||||||||||
Revenues: | |||||||||||
Net investment income | $ | 4,090 | $ | 4,032 | $ | 4,314 | |||||
Net realized investment gains (losses) | 19,279 | 6,062 | (7,026 | ) | |||||||
Other | — | 17 | — | ||||||||
Total revenues | 23,369 | 10,111 | (2,712 | ) | |||||||
Expenses: | |||||||||||
Other operating expenses | 1,918 | 2,673 | 7,526 | ||||||||
Interest | 14,856 | 2,690 | 2,127 | ||||||||
Total expenses | 16,774 | 5,363 | 9,653 | ||||||||
Income (loss) before income taxes and equity in net income of subsidiaries | 6,595 | 4,748 | (12,365 | ) | |||||||
Income tax expense (benefit) | 1,572 | 8,514 | (4,708 | ) | |||||||
Income (loss) before equity in net income of subsidiaries | 5,023 | (3,766 | ) | (7,657 | ) | ||||||
Equity in net income of subsidiaries | 139,854 | 76,810 | 82,136 | ||||||||
Net income | $ | 144,877 | $ | 73,044 | $ | 74,479 |
MERCURY GENERAL CORPORATION CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF CASH FLOWS | |||||||||||
Year Ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
(Amounts in thousands) | |||||||||||
Cash flows from operating activities: | |||||||||||
Net cash (used in) provided by operating activities | $ | (14,503 | ) | $ | 4,731 | $ | 575 | ||||
Cash flows from investing activities: | |||||||||||
Capital contribution to subsidiaries | (140,125 | ) | (30,125 | ) | (90,125 | ) | |||||
Distributions received from special purpose entities | 5,243 | 4,898 | 8,883 | ||||||||
Dividends received from subsidiaries | 109,000 | 110,800 | 133,000 | ||||||||
Fixed maturity securities available for sale in nature: | |||||||||||
Purchases | (188,467 | ) | (1,060 | ) | (571 | ) | |||||
Sales | 165,944 | — | — | ||||||||
Calls or maturities | 4,000 | — | — | ||||||||
Equity securities available for sale in nature | |||||||||||
Purchases | — | (64,807 | ) | (146,236 | ) | ||||||
Sales | — | 73,942 | 192,005 | ||||||||
Net decrease in short-term investments | — | 515 | 8,612 | ||||||||
Business acquisition | — | — | (6,000 | ) | |||||||
Other, net | 310 | 1,614 | 1,945 | ||||||||
Net cash provided by investing activities | (44,095 | ) | 95,777 | 101,513 | |||||||
Cash flows from financing activities: | |||||||||||
Dividends paid to shareholders | (137,886 | ) | (137,201 | ) | (136,386 | ) | |||||
Employee taxes paid with shares related to share-based compensation | — | (3,292 | ) | — | |||||||
Proceeds from stock options exercised | 2,162 | 1,632 | 2,111 | ||||||||
Net proceeds from issuance of senior notes | 371,011 | — | — | ||||||||
Payoff of principal on loan and credit facilities | (180,000 | ) | — | — | |||||||
Proceeds from bank loan | — | 30,000 | — | ||||||||
Net cash used in financing activities | 55,287 | (108,861 | ) | (134,275 | ) | ||||||
Net decrease in cash | (3,311 | ) | (8,353 | ) | (32,187 | ) | |||||
Cash: | |||||||||||
Beginning of year | 11,786 | 20,139 | 52,326 | ||||||||
End of year | $ | 8,475 | $ | 11,786 | $ | 20,139 | |||||
SUPPLEMENTAL CASH FLOW DISCLOSURE | |||||||||||
Interest paid | $ | 9,435 | $ | 2,397 | $ | 2,153 | |||||
Income taxes paid (refunded), net | $ | 346 | $ | (339 | ) | $ | 1,807 |
Mercury Casualty Company | Mercury County Mutual Insurance Company | |
Mercury Insurance Company | Mercury Insurance Company of Florida | |
California Automobile Insurance Company | Mercury Indemnity Company of America | |
California General Underwriters Insurance Company, Inc. | Mercury Select Management Company, Inc. | |
Mercury Insurance Company of Illinois | Mercury Insurance Services LLC | |
Mercury Insurance Company of Georgia | AIS Management LLC | |
Mercury Indemnity Company of Georgia | Auto Insurance Specialists LLC | |
Mercury National Insurance Company | PoliSeek AIS Insurance Solutions, Inc. | |
American Mercury Insurance Company | Animas Funding LLC | |
American Mercury Lloyds Insurance Company | Fannette Funding LLC | |
Workmen's Auto Insurance Company |
SCHEDULE IV MERCURY GENERAL CORPORATION AND SUBSIDIARIES REINSURANCE THREE YEARS ENDED DECEMBER 31, Property and Liability Insurance Earned Premiums | |||||||||||
2017 | 2016 | 2015 | |||||||||
(Amounts in thousands) | |||||||||||
Direct amounts | $ | 3,221,493 | $ | 3,146,864 | $ | 2,970,424 | |||||
Ceded to other companies | (26,881 | ) | (15,846 | ) | (12,964 | ) | |||||
Assumed | 825 | 755 | 437 | ||||||||
Net amounts | $ | 3,195,437 | $ | 3,131,773 | $ | 2,957,897 |
1. | I have reviewed this annual report on Form 10-K of Mercury General Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: | February 8, 2018 | /s/ GABRIEL TIRADOR | |
Gabriel Tirador, President and Chief Executive Officer |
1. | I have reviewed this annual report on Form 10-K of Mercury General Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: | February 8, 2018 | /s/ THEODORE STALICK | |
Theodore Stalick, Senior Vice President and Chief Financial Officer |
(i) | the accompanying Annual Report on Form 10-K of the Company for the period ended December 31, 2017 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and |
(ii) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: | February 8, 2018 | /s/ GABRIEL TIRADOR | |
Gabriel Tirador, President and Chief Executive Officer |
(i) | the accompanying Annual Report on Form 10-K of the Company for the period ended December 31, 2017 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and |
(ii) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: | February 8, 2018 | /s/ THEODORE STALICK | |
Theodore Stalick, Senior Vice President and Chief Financial Officer |
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Document And Entity Information - USD ($) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Feb. 02, 2018 |
Jun. 30, 2017 |
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Document And Entity Information [Abstract] | |||
Document Type | 10-K | ||
Amendment Flag | false | ||
Document Period End Date | Dec. 31, 2017 | ||
Document Fiscal Year Focus | 2017 | ||
Document Fiscal Period Focus | FY | ||
Entity Registrant Name | MERCURY GENERAL CORP | ||
Entity Central Index Key | 0000064996 | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Filer Category | Large Accelerated Filer | ||
Entity Common Stock, Shares Outstanding | 55,332,077 | ||
Entity Well-known Seasoned Issuer | Yes | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Public Float | $ 1,471,397,454 |
Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands |
Dec. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Amortized cost on fixed maturities trading investments | $ 2,823,230 | $ 2,795,410 |
Cost - equity security trading investments | 474,197 | 331,770 |
Cost - short-term investments | $ 302,693 | $ 375,700 |
Common Stock | ||
Common stock, no par value (in dollars per share) | $ 0 | $ 0 |
Common stock, shares authorized (in shares) | 70,000,000 | 70,000,000 |
Common stock, shares issued (in shares) | 55,332,000 | 55,289,000 |
Common stock, shares outstanding (in shares) | 55,332,000 | 55,289,000 |
Consolidated Statements Of Operations - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Revenues: | |||
Net premiums earned | $ 3,195,437 | $ 3,131,773 | $ 2,957,897 |
Net investment income | 124,930 | 121,871 | 126,299 |
Net realized investment gains (losses) | 83,650 | (34,255) | (83,807) |
Other | 11,945 | 8,294 | 8,911 |
Total revenues | 3,415,962 | 3,227,683 | 3,009,300 |
Expenses: | |||
Losses and loss adjustment expenses | 2,444,884 | 2,355,138 | 2,145,495 |
Policy acquisition costs | 555,350 | 562,545 | 539,231 |
Other operating expenses | 233,475 | 235,314 | 250,839 |
Interest | 15,168 | 3,962 | 3,168 |
Total expenses | 3,248,877 | 3,156,959 | 2,938,733 |
Income before income taxes | 167,085 | 70,724 | 70,567 |
Income tax expense (benefit) | 22,208 | (2,320) | (3,912) |
Net income | $ 144,877 | $ 73,044 | $ 74,479 |
Net income per share: | |||
Basic (in dollars per share) | $ 2.62 | $ 1.32 | $ 1.35 |
Diluted (in dollars per share) | $ 2.62 | $ 1.32 | $ 1.35 |
Summary of Significant Accounting Policies |
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Significant Accounting Policies | Summary of Significant Accounting Policies General Mercury General Corporation ("Mercury General") and its subsidiaries (referred to herein collectively as the "Company") are primarily engaged in writing personal automobile insurance through 14 Insurance Companies in 11 states, principally California. The Company also writes homeowners, commercial automobile, commercial property, mechanical protection, fire, and umbrella insurance. The private passenger automobile line of insurance business was more than 76% of the Company’s direct premiums written in 2017, 2016, and 2015, of which approximately 85%, 84%, and 83% of the private passenger automobile premiums were written in California during 2017, 2016, and 2015, respectively. Premiums written represents the premiums charged on policies issued during a fiscal period, which is a statutory measure designed to determine production levels. Consolidation and Basis of Presentation The consolidated financial statements include the accounts of Mercury General Corporation and its subsidiaries:
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The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles ("GAAP"), which differ in some respects from those filed in reports to insurance regulatory authorities. All intercompany transactions and balances have been eliminated. Certain prior period amounts have been reclassified to conform with the current period presentation. The Company did not have other comprehensive income (loss) in 2017, 2016 and 2015. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. These estimates require the Company to apply complex assumptions and judgments, and often the Company must make estimates about effects of matters that are inherently uncertain and will likely change in subsequent periods. The most significant assumptions in the preparation of these consolidated financial statements relate to reserves for losses and loss adjustment expenses. Actual results could differ from those estimates. Investments The Company applies the fair value option to all fixed maturity and equity securities and short-term investments at the time an eligible item is first recognized. The primary reasons for electing the fair value option were simplification and cost benefit considerations as well as the expansion of the use of fair value measurement by the Company consistent with the long-term measurement objectives of the Financial Accounting Standards Board (the "FASB") for accounting for financial instruments. See Note 2. Financial Instruments for additional information on the fair value option. Gains and losses due to changes in fair value for items measured at fair value pursuant to application of the fair value option are included in net realized investment gains (losses) in the Company's consolidated statements of operations, while interest and dividend income on investment holdings are recognized on an accrual basis on each measurement date and are included in net investment income in the Company's consolidated statements of operations. Fixed maturity securities include debt securities, which may have fixed or variable principal payment schedules, may be held for indefinite periods of time, and may be used as a part of the Company’s asset/liability strategy or sold in response to changes in interest rates, anticipated prepayments, risk/reward characteristics, liquidity needs, tax planning considerations, or other economic factors. Premiums and discounts on fixed maturities are amortized using first call date and are adjusted for anticipated prepayments. Premiums and discounts on mortgage-backed securities are adjusted for anticipated prepayment using the retrospective method, with the exception of some beneficial interests in securitized financial assets, which are accounted for using the prospective method. Equity securities consist of non-redeemable preferred stocks, common stocks on which dividend income is partially tax-sheltered by the 70% corporate dividend received deduction, and private equity funds. Short-term investments include money market accounts, options, and short-term bonds that are highly rated short duration securities and redeemable within one year. In the normal course of investing activities, the Company either forms or enters into relationships with variable interest entities ("VIEs"). A VIE is an entity that either has investors that lack certain essential characteristics of a controlling financial interest, such as simple majority kick-out rights, or lacks sufficient funds to finance its own activities without financial support provided by other entities. The Company performs ongoing qualitative assessments of the VIEs to determine whether the Company has a controlling financial interest in the VIE and therefore is the primary beneficiary. The Company is deemed to have a controlling financial interest when it has both the ability to direct the activities that most significantly impact the economic performance of the VIE and the obligation to absorb losses or right to receive benefits from the VIE that could potentially be significant to the VIE. Based on the Company's assessment, if it determines it is the primary beneficiary, the Company consolidates the VIE in its consolidated financial statements. The Company forms special purpose investment vehicles to facilitate its investment activities involving derivative instruments such as total return swaps, or limited partnerships such as private equity funds. These special purpose investment vehicles are consolidated VIEs as the Company has determined it is the primary beneficiary of such VIEs. Creditors have no recourse against the Company in the event of default by these VIEs. The Company had no implied or unfunded commitments to these VIEs at December 31, 2017 and 2016. The Company's financial or other support provided to these VIEs and its loss exposure are limited to its collateral and original investment. The Company also invests directly in limited partnerships such as private equity funds. These investments are non-consolidated VIEs as the Company has determined it is not the primary beneficiary. The Company's maximum exposure to loss is limited to the total carrying value that is included in equity securities in the Company's consolidated balance sheets. At December 31, 2017 and 2016, the Company had no outstanding unfunded commitments to these VIEs whereby the Company may be called by the partnerships during the commitment period to fund the purchase of new investments and the expenses of the partnerships. Securities on Deposit As required by statute, the Company’s insurance subsidiaries have securities deposited with the departments of insurance or similar governmental agencies in the states in which they are licensed to operate with fair values totaling $17 million and $19 million at December 31, 2017 and 2016, respectively. Deferred Policy Acquisition Costs Deferred policy acquisition costs consist of commissions paid to outside agents, premium taxes, salaries, and certain other underwriting costs that are incremental or directly related to the successful acquisition of new and renewal insurance contracts and are amortized over the life of the related policy in proportion to premiums earned. Deferred policy acquisition costs are limited to the amount that will remain after deducting from unearned premiums and anticipated investment income, the estimated losses and loss adjustment expenses, and the servicing costs that will be incurred as premiums are earned. The Company’s deferred policy acquisition costs are further limited by excluding those costs not directly related to the successful acquisition of insurance contracts. The Company does not defer advertising expenditures but expenses them as incurred. The table below presents a summary of deferred policy acquisition cost amortization and net advertising expense:
Fixed Assets Fixed assets are stated at historical cost less accumulated depreciation and amortization. The useful life for buildings is 30 to 40 years. Furniture, equipment, and purchased software are depreciated on a combination of straight-line and accelerated methods over 3 to 7 years. The Company has capitalized certain consulting costs, payroll, and payroll-related costs for employees related to computer software developed for internal use, which are amortized on a straight-line method over the estimated useful life of the software, generally not exceeding 7 years. In accordance with applicable accounting standards, capitalization ceases no later than the point at which a computer software project is substantially complete and ready for its intended use. Leasehold improvements are amortized over the shorter of the useful life of the assets or the life of the associated lease. The Company periodically assesses long-lived assets or asset groups including building and equipment, for recoverability when events or changes in circumstances indicate that their carrying amounts may not be recoverable. If the Company identifies an indicator of impairment, the Company assesses recoverability by comparing the carrying amount of the asset to the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset. An impairment loss is recognized when the carrying amount is not recoverable and is measured as the excess of carrying value over fair value. There were no impairment charges during 2017, 2016, and 2015. Goodwill and Other Intangible Assets Goodwill and other intangible assets arise as a result of business acquisitions and consist of the excess of the cost of the acquisitions over the tangible and intangible assets acquired and liabilities assumed and identifiable intangible assets acquired. Identifiable intangible assets consist of the value of customer relationships, trade names, software and technology, and favorable leases, which are all subject to amortization, and an insurance license which is not subject to amortization. The Company evaluates goodwill and other intangible assets for impairment annually or whenever events or changes in circumstances indicate that it is more likely than not that the carrying amount of goodwill and other intangible assets may exceed their implied fair values. The Company qualitatively determines whether, more likely than not, the fair value exceeds the carrying amount of a reporting unit. There are numerous assumptions and estimates underlying the qualitative assessments including future earnings, long-term strategies, and the Company’s annual planning and forecasting process. If these planned initiatives do not accomplish the targeted objectives, the assumptions and estimates underlying the qualitative assessments could be adversely affected and have a material effect upon the Company’s financial condition and results of operations. In addition, the Company evaluates other intangible assets using methods similar to those used for goodwill described above. As of December 31, 2017 and 2016, goodwill and other intangible impairment assessments indicated that there was no impairment. Premium Revenue Recognition Premium revenue is recognized on a pro-rata basis over the terms of the policies in proportion to the amount of insurance protection provided. Premium revenue includes installment and other fees for services which are recognized in the periods in which the services are rendered. Unearned premiums represent the portion of the written premium related to the unexpired policy term. Unearned premiums are predominantly computed monthly on a pro-rata basis and are stated gross of reinsurance deductions, with the reinsurance deduction recorded in other receivables. Net premiums written, a statutory measure designed to determine production levels, were $3.22 billion, $3.16 billion, and $3.00 billion in 2017, 2016, and 2015, respectively. Losses and Loss Adjustment Expenses Unpaid losses and loss adjustment expenses are determined in amounts estimated to cover incurred losses and loss adjustment expenses and established based upon the Company’s assessment of claims pending and the development of prior years’ loss liabilities. These amounts include liabilities based upon individual case estimates for reported losses and loss adjustment expenses and estimates of such amounts that are incurred but not reported. Changes in the estimated liability are charged or credited to operations as the losses and loss adjustment expenses are re-estimated. The liability is stated net of anticipated salvage and subrogation recoveries, and gross of reinsurance recoverables on unpaid losses. Estimating loss reserves is a difficult process as many factors can ultimately affect the final settlement of a claim and, therefore, the loss reserve that is required. A key assumption in estimating loss reserves is the degree to which the historical data used to analyze reserves will be predictive of ultimate claim costs on incurred claims. Changes in the regulatory and legal environments, results of litigation, medical costs, the cost of repair materials, and labor rates, among other factors, can impact this assumption. In addition, time can be a critical part of reserving determinations since the longer the span between the incidence of a loss and the payment or settlement of a claim, the more variable the ultimate settlement amount could be. Accordingly, short-tail claims, such as property damage claims, tend to be more reasonably predictable than long-tail liability claims, such as those involving the Company’s bodily injury ("BI") coverages. Management believes that the liability for losses and loss adjustment expenses is adequate to cover the ultimate net cost of losses and loss adjustment expenses incurred to date. However, since the provisions for loss reserves are necessarily based upon estimates, the ultimate liability may be more or less than such provisions. The Company analyzes loss reserves quarterly primarily using the incurred loss, paid loss, average severity coupled with the claim count development methods, and the generalized linear model ("GLM") described below. When deciding among methods to use, the Company evaluates the credibility of each method based on the maturity of the data available and the claims settlement practices for each particular line of insurance business or coverage within a line of insurance business. The Company may also evaluate qualitative factors such as known changes in laws or legal ruling that could affect claims handling or other external environmental factors or internal factors that could affect the settlement of claims. When establishing the loss reserve, the Company will generally analyze the results from all of the methods used rather than relying on a single method. While these methods are designed to determine the ultimate losses on claims under the Company’s policies, there is inherent uncertainty in all actuarial models since they use historical data to project outcomes. The Company believes that the techniques it uses provide a reasonable basis in estimating loss reserves.
The Company analyzes catastrophe losses separately from non-catastrophe losses. For catastrophe losses, the Company generally determines claim counts based on claims reported and development expectations from previous catastrophes and applies an average expected loss per claim based on loss reserves established by adjusters and average losses on previous similar catastrophes. For catastrophe losses on individual properties that are expected to be total losses, the Company typically establishes reserves at the policy limits. Derivative Financial Instruments The Company accounts for all derivative instruments, other than those that meet the normal purchases and sales exception, as either an asset or liability, measured at fair value, which is based on information obtained from independent parties. In addition, changes in fair value are recognized in earnings unless specific hedge accounting criteria are met. The Company’s derivative instruments include total return swaps and options sold. See Note 8. Derivative Financial Instruments. Earnings Per Share Basic earnings per share excludes dilution and reflects net income divided by the weighted average shares of common stock outstanding during the periods presented. Diluted earnings per share is based on the weighted average shares of common stock and potential dilutive securities outstanding during the periods presented. At December 31, 2017, potential dilutive securities consisted of outstanding stock options, while at December 31, 2016, such securities consisted of outstanding stock options and restricted stock units ("RSUs") granted under the Company's 2014 Long Term Incentive Plan. See Note 16. Earnings Per Share, for the required disclosures relating to the calculation of basic and diluted earnings per share. Income Taxes Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial reporting basis and the respective tax basis of the Company’s assets and liabilities, and expected benefits of utilizing net operating loss, capital loss, and tax-credit carryforwards. The Company assesses the likelihood that its deferred tax assets will be realized and, to the extent management does not believe these assets are more likely than not to be realized, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates or laws is recognized in earnings in the period that includes the enactment date. At December 31, 2017, the Company’s deferred income taxes were in a net liability position, which included a combination of ordinary and capital deferred tax benefits and expenses. In assessing the Company's ability to realize deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon generating sufficient taxable income of the appropriate character within the carryback and carryforward periods available under the tax law. Management considers the reversal of deferred tax liabilities, projected future taxable income of an appropriate nature, and tax-planning strategies in making this assessment. The Company believes that through the use of prudent tax planning strategies and the generation of capital gains, sufficient income will be realized in order to maximize the full benefits of its deferred tax assets. Although realization is not assured, management believes that it is more likely than not that the Company’s deferred tax assets will be realized. Reinsurance Liabilities for unearned premiums and unpaid losses are stated in the accompanying consolidated financial statements before deductions for ceded reinsurance. Unpaid losses and unearned premiums that are ceded to reinsurers are carried in reinsurance recoverables and other receivables, respectively, in the Company's consolidated balance sheets. Earned premiums are stated net of deductions for ceded reinsurance. The Insurance Companies, as primary insurers, are required to pay losses to the extent reinsurers are unable to discharge their obligations under the reinsurance agreements. Share-Based Compensation Share-based compensation expense for all stock options granted or modified is based on the estimated grant-date fair value. The Company recognizes these compensation costs on a straight-line basis over the requisite service period of the award, which is the option vesting term of four or five years for options granted prior to 2008 and four years for options granted subsequent to January 1, 2008, for only those shares expected to vest. The fair value of stock option awards is estimated using the Black-Scholes option pricing model with the grant-date assumptions and weighted-average fair values. The fair value of each restricted stock unit grant was determined based on the market price on the grant date for awards classified as equity and on each reporting date for awards classified as a liability. Compensation cost is recognized based on management’s best estimate of the performance goals that will be achieved. If such goals are not met, no compensation cost is recognized and any recognized compensation cost would be reversed. See Note 15. Share-Based Compensation for additional disclosures. Recently Issued Accounting Standards In May 2017, the FASB issued Accounting Standards Update ("ASU") 2017-09, "Compensation - Stock Compensation (Topic 718), Scope of Modification Accounting." ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU 2017-09 is effective for the Company beginning January 1, 2018. The Company does not anticipate that ASU 2017-09 will have a material impact on its consolidated financial statements and related disclosures. In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment." ASU 2017-04 removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of Step 2 of the goodwill impairment test and requires an entity to recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU 2017-04 will be effective for the Company beginning January 1, 2020 with early adoption permitted. The Company does not anticipate that ASU 2017-04 will have a material impact on its consolidated financial statements and related disclosures. In October 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory." ASU 2016-16 requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. ASU 2016-16 is effective for the Company beginning January 1, 2018. The Company does not anticipate that ASU 2016-16 will have a material impact on its consolidated financial statements and related disclosures. In August 2016, the FASB issued ASU 2016-15, "Classification of Certain Cash Receipts and Cash Payments (Topic 230)." The new guidance is intended to reduce diversity in how certain transactions are classified in the consolidated statement of cash flows. ASU 2016-15 is effective for the Company beginning January 1, 2018. The Company does not anticipate that ASU 2016-15 will have a material impact on its consolidated financial statements and related disclosures. In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326)." The amendments in this ASU replace the "incurred loss" methodology for recognizing credit losses with a methodology that reflects expected credit losses and requires consideration of a broader range of information including past events, current conditions and reasonable and supportable forecasts that affect the collectibility of reported amounts of financial assets that are not accounted for at fair value through net income, such as loans, certain debt securities, trade receivables, net investment in leases, off-balance sheet credit exposures and reinsurance receivables. Under the current GAAP incurred loss methodology, recognition of the full amount of credit losses is generally delayed until the loss is probable of occurring. Current GAAP restricts the ability to record credit losses that are expected, but do not yet meet the probability threshold. ASU 2016-13 will be effective for the Company beginning with the first quarter ending March 31, 2020. While the Company is in the process of evaluating the impact of ASU 2016-13, it does not expect this ASU to have a material impact on its consolidated financial statements and related disclosures as most of its financial instruments with potential exposure to material credit losses are accounted for at fair value through net income. In March 2016, the FASB issued ASU 2016-09, "Compensation - Stock Compensation (Topic 718)," which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The Company adopted ASU 2016-09 for the quarter ended March 31, 2017. As a result of the adoption, the Company recognizes excess tax benefits in its provision for income taxes rather than paid-in capital. Additional amendments to accounting for income taxes and minimum statutory withholding tax requirements had no impact to retained earnings as of January 1, 2017, where the cumulative effect of these changes are required to be recorded. The Company elected to continue to estimate forfeitures expected to occur to determine the amount of compensation cost to be recognized in each period. The Company also elected to apply the presentation requirements for cash flows related to excess tax benefits retrospectively to all periods presented, which resulted in an increase to both net cash provided by operating activities and net cash used in financing activities of approximately $913,000 and $27,000 for 2016 and 2015, respectively. The adoption of the presentation requirements for cash flows related to employee taxes paid with shares resulted in an increase to both net cash provided by operating activities and net cash used in financing activities of approximately $3,292,000 and $0 for 2016 and 2015, respectively. In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)," which supersedes the guidance in Accounting Standards Codification ("ASC") 840, "Leases." ASU 2016-02 requires a lessee to recognize lease assets and lease liabilities resulting from all leases. ASU 2016-02 retains the distinction between a finance lease and an operating lease. Lessor accounting is largely unchanged from ASC 840. ASU 2016-02 will be effective for the Company beginning January 1, 2019. However, in transition, the Company will be required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. While the Company is in the process of evaluating the impact of ASU 2016-02, it does not expect this ASU to have a material impact on its consolidated financial statements, except for recognizing lease assets and lease liabilities for its operating leases. The Company's lease obligations under various non-cancellable operating lease agreements amounted to approximately $32,000,000 at December 31, 2017. In January 2016, the FASB issued ASU 2016-01, "Financial Instruments-Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities." The amendments in this ASU address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU 2016-01: (1) requires equity investments (except those accounted for under the equity method or those that result in the consolidation of the investee) to be measured at fair value with changes in the fair value recognized in net income; (2) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (3) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (4) requires the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (5) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the notes to the financial statements; and (6) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. ASU 2016-01 is effective for the Company beginning January 1, 2018. The Company does not anticipate that ASU 2016-01 will have a material impact on its consolidated financial statements and related disclosures. In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)." ASU 2014-09 requires entities to apply a five-step model to determine the amount and timing of revenue recognition. The model specifies, among other criteria, that revenue should be recognized when an entity transfers control of goods or services to a customer in the amount to which the entity expects to be entitled. In August 2015, the FASB issued ASU 2015-14, "Revenue from Contracts with Customers (Topic 606), Deferral of the Effective Date," which deferred the effective date of ASU 2014-09 for the Company to January 1, 2018. Subsequently, the FASB has issued additional ASUs on Topic 606 that do not change the core principle of the guidance in ASU 2014-09 but merely clarify certain aspects of it. The additional ASUs is also effective for the Company beginning January 1, 2018. Two methods of transition are permitted upon adoption: full retrospective and modified retrospective. The Company adopted ASU 2014-09 along with the related additional ASUs on Topic 606 on January 1, 2018, using the modified retrospective transition method. The Company did not have any material cumulative-effect adjustment as a result of the adoption, mostly because the accounting for insurance contracts is outside of the scope of ASU 2014-09. In addition, the adoption of ASU 2014-09 and the overall Topic 606 will not have any material impact on our consolidated financial statement line items in the year of adoption. The Company will make the additional required disclosures under Topic 606, starting with the Company's consolidated financial statements that include the initial adoption date. |
Fair Value of Financial Instruments |
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Financial Instruments, Owned, at Fair Value [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value of Financial Instruments | Financial Instruments Financial instruments recorded in the consolidated balance sheets include investments, note receivable, other receivables, options sold, total return swaps, accounts payable, and secured and unsecured notes payable. Due to their short-term maturity, the carrying values of other receivables and accounts payable approximate their fair values. All investments are carried at fair value in the consolidated balance sheets. The following table presents the fair values of financial instruments:
Investments The Company applies the fair value option to all fixed maturity and equity securities and short-term investments at the time an eligible item is first recognized. The cost of investments sold is determined on a first-in and first-out method and realized gains and losses are included in net realized investment gains (losses) in the Company's consolidated statements of operations. See Note 3. Investments for additional information. Note Receivable Note receivable was recognized as part of the sale of land in August 2017 (See Note 5. Fixed Assets for additional information on the sale transaction). The Company elected to apply the fair value option to this security at the time it was first recognized. The fair value of note receivable is included in other assets in the Company's consolidated balance sheets, while the changes in fair value of note receivable are included in net realized investment gains (losses) in the Company's consolidated statements of operations. Options Sold The Company writes covered call options through listed and over-the-counter exchanges. When the Company writes an option, an amount equal to the premium received by the Company is recorded as a liability and is subsequently adjusted to the current fair value of the option written. Premiums received from writing options that expire unexercised are treated by the Company as realized gains from investments on the expiration date. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security in determining whether the Company has realized a gain or loss. The Company, as writer of an option, bears the market risk of an unfavorable change in the price of the security underlying the written option. Liabilities for covered call options of $0.12 million and $0.02 million were included in other liabilities in the Company's consolidated balance sheets at December 31, 2017 and 2016, respectively. Total Return Swaps The fair values of the total return swaps reflect the estimated amounts that, upon termination of the contracts, would be received for selling an asset or paid to transfer a liability in an orderly transaction at December 31, 2017 and 2016 based on models using inputs, such as interest rate yield curves and credit spreads, observable for substantially the full term of the contract. Secured Notes The fair values of the Company's $120 million secured note and $20 million secured note at December 31, 2016 approximated their carrying values. Unsecured Notes The fair value of the Company’s publicly traded $375 million unsecured note at December 31, 2017 was obtained from a third party pricing service. The fair value of the Company's $180 million unsecured note at December 31, 2016 approximated the carrying value. For additional disclosures regarding methods and assumptions used in estimating fair values, see Note 4. Fair Value Measurements. |
Investments |
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Investments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investments | Investments The following table presents gains (losses) due to changes in fair value of investments that are measured at fair value pursuant to application of the fair value option:
The following table presents gross gains (losses) realized on the sales of investments:
Contractual Maturity At December 31, 2017, fixed maturity holdings rated below investment grade and non-rated comprised 3.4% of total investments at fair value. Additionally, the Company owns securities that are credit enhanced by financial guarantors that are subject to uncertainty related to market perception of the guarantors’ ability to perform. Determining the estimated fair value of municipal bonds could become more difficult should markets for these securities become illiquid. The following table presents the estimated fair values of the Company's fixed maturity securities at December 31, 2017 by contractual maturity. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Investment Income The following table presents a summary of net investment income:
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Fair Value Measurements |
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Financial Instruments, Financial Assets, Balance Sheet Groupings [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurement | Fair Value Measurements The Company employs a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date using the exit price. Accordingly, when market observable data are not readily available, the Company’s own assumptions are set to reflect those that market participants would be presumed to use in pricing the asset or liability at the measurement date. Assets and liabilities recorded at fair value on the consolidated balance sheets are categorized based on the level of judgment associated with inputs used to measure their fair value and the level of market price observability, as follows:
In certain cases, inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Thus, a Level 3 fair value measurement may include inputs that are observable (Level 1 or Level 2) and unobservable (Level 3). The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of factors specific to the asset or liability. The Company uses prices and inputs that are current as of the measurement date, including during periods of market disruption. In periods of market disruption, the ability to observe prices and inputs may be reduced for many instruments. This condition could cause an instrument to be reclassified from Level 1 to Level 2, or from Level 2 to Level 3. The Company recognizes transfers between levels at either the actual date of the event or a change in circumstances that caused the transfer. Summary of Significant Valuation Techniques for Financial Assets and Financial Liabilities The Company’s fair value measurements are based on the market approach, which utilizes market transaction data for the same or similar instruments. The Company obtained unadjusted fair values on 98.0% of its investment portfolio from an independent pricing service. For private equity funds that were classified as Level 3 and included in equity securities at December 31, 2017 and 2016, the Company obtained specific unadjusted broker quotes based on net fund value and, to a lesser extent, unobservable inputs from at least one knowledgeable outside security broker to determine the fair value. The fair value of such private equity funds was $1.5 million and $9.1 million at December 31, 2017 and 2016, respectively. Level 1 measurements—Fair values of financial assets and financial liabilities are obtained from an independent pricing service, and are based on unadjusted quoted prices for identical assets or liabilities in active markets. Additional pricing services and closing exchange values are used as a comparison to ensure that reasonable fair values are used in pricing the investment portfolio. U.S. government bonds/Short-term bonds: Valued using unadjusted quoted market prices for identical assets in active markets. Common stock: Comprised of actively traded, exchange listed U.S. and international equity securities and valued based on unadjusted quoted prices for identical assets in active markets. Money market instruments: Valued based on unadjusted quoted prices for identical assets in active markets. Options sold: Comprised of free-standing exchange listed derivatives that are actively traded and valued based on quoted prices for identical instruments in active markets. Level 2 measurements—Fair values of financial assets and financial liabilities are obtained from an independent pricing service or outside brokers, and are based on prices for similar assets or liabilities in active markets or valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the asset or liability. Additional pricing services are used as a comparison to ensure reliable fair values are used in pricing the investment portfolio. Municipal securities: Valued based on models or matrices using inputs such as quoted prices for identical or similar assets in active markets. Mortgage-backed securities: Comprised of securities that are collateralized by residential and commercial mortgage loans and valued based on models or matrices using multiple observable inputs, such as benchmark yields, reported trades and broker/dealer quotes, for identical or similar assets in active markets. The Company had holdings of $19.3 million and $30.0 million in commercial mortgage-backed securities at December 31, 2017 and 2016, respectively. Corporate securities/Short-term bonds: Valued based on a multi-dimensional model using multiple observable inputs, such as benchmark yields, reported trades, broker/dealer quotes and issue spreads, for identical or similar assets in active markets. Non-redeemable preferred stock: Valued based on observable inputs, such as underlying and common stock of same issuer and appropriate spread over a comparable U.S. Treasury security, for identical or similar assets in active markets. Total return swaps: Valued based on multi-dimensional models using inputs such as interest rate yield curves, underlying debt/credit instruments and the appropriate benchmark spread for similar assets in active markets, observable for substantially the full term of the contract. Collateralized loan obligations ("CLOs"): Valued based on underlying debt instruments and the appropriate benchmark spread for similar assets in active markets. Other asset-backed securities: Comprised of securities that are collateralized by non-mortgage assets, such as automobile loans, valued based on models or matrices using multiple observable inputs, such as benchmark yields, reported trades and broker/dealer quotes, for identical or similar assets in active markets. Note receivable: Valued based on observable inputs, such as benchmark yields, and considering any premium or discount for the differential between the stated interest rate and market interest rates, based on quoted market prices of similar instruments. Level 3 measurements—Fair values of financial assets are based on inputs that are both unobservable and significant to the overall fair value measurement, including any items in which the evaluated prices obtained elsewhere were deemed to be of a distressed trading level. Private equity funds: Private equity funds, excluding a private equity fund measured at net asset value ("NAV"), are valued based on underlying investments of the fund or assets similar to such investments in active markets, taking into consideration specific unadjusted broker quotes based on net fund value and unobservable inputs from at least one knowledgeable outside security broker related to liquidity assumptions. Fair value measurement using NAV practical expedient - The fair value of the Company's investment in private equity fund measured at net asset value is determined using NAV as advised by the external fund manager and the third party administrator. The NAV of the Company's limited partnership interest in this fund is based on the manager's and the administrator's valuation of the underlying holdings in accordance with the fund's governing documents and GAAP. In accordance with applicable accounting guidance, this investment, measured at fair value using the NAV practical expedient, is not classified in the fair value hierarchy. The strategy of the fund is to provide current income to investors by investing mainly in equity tranches and sub-investment grade rated debt tranches of CLO issuers in the new and secondary markets, and equity interests in vehicles established to purchase and warehouse loans in anticipation of a CLO closing or to satisfy regulatory risk retention requirements associated with certain CLOs. The Company has made all of its capital contributions in the fund and had no outstanding unfunded commitments at December 31, 2017 with respect to this fund. The underlying assets of the fund are expected to be liquidated over the period of one to five years from December 31, 2017. The Company does not have the contractual option to redeem but will receive distributions based on the liquidation of the underlying assets and the interest proceeds from the underlying assets. In addition, the Company does not have the ability to withdraw from the fund, or to sell, assign, pledge or transfer its investment, without the consent from the general partner of the fund. The Company’s financial instruments at fair value are reflected in the consolidated balance sheets on a trade-date basis. Related unrealized gains or losses are recognized in net realized investment gains or loses in the consolidated statements of operations. Fair value measurements are not adjusted for transaction costs. The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis, and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair values:
__________ (1) The fair value is measured using the NAV practical expedient; therefore, it is not categorized within the fair value hierarchy. The fair value amount is presented in this table to permit reconciliation of the fair value hierarchy to the amounts presented in the Company's consolidated balance sheets.
The following table presents a summary of changes in fair value of Level 3 financial assets:
There were no transfers between Levels 1, 2, and 3 of of the fair value hierarchy in 2017 and 2016. At December 31, 2017 and 2016, the Company did not have any nonrecurring fair value measurements of nonfinancial assets or nonfinancial liabilities. Financial Instruments Disclosed, But Not Carried, at Fair Value The following tables present the carrying value and fair value of the Company’s financial instruments disclosed, but not carried, at fair value, and the level within the fair value hierarchy at which such instruments are categorized:
Secured Notes The fair values of the Company’s $120 million secured note and $20 million secured note at December 31, 2016 were estimated based on assumptions and inputs, such as the market value of underlying collateral and reset rates, for similarly termed notes that are observable in the market. In addition, the fair values of these secured notes approximated their carrying values, as the interest rates on these securities were variable and approximated current market interest rates. Unsecured Notes The fair value of the Company’s publicly traded $375 million unsecured note at December 31, 2017 was based on the spreads above the risk-free yield curve. These spreads are generally obtained from the new issue market, secondary trading and broker-dealer quotes. The fair value of the Company's $180 million unsecured note at December 31, 2016 was based on the unadjusted quoted price for similar notes in active markets. In addition, the fair value of this unsecured note approximated its carrying value, as the interest rate on this security was variable and approximated current market interest rates. See Note 7. Notes Payable for additional information on secured and unsecured notes. |
Fixed Assets |
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Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fixed Assets | Fixed Assets The following table presents the components of fixed assets:
Depreciation expense, including amortization of leasehold improvements, was $21.1 million, $20.2 million, and $20.5 million during 2017, 2016, and 2015, respectively. In August 2017, the Company completed the sale of approximately six acres of land located in Brea, California (the "Property"), for a total sale price of approximately $12.2 million. Approximately $5.7 million of the total sale price was received in the form of a promissory note (the "Note") and the remainder in cash. The Note is secured by a first trust deed and an assignment of rents on the Property, and bears interest at an annual rate of 3.5%, payable in monthly installments. The Note matures in August 2020, and its fair value is included in other assets in the Company's consolidated balance sheets. Only the cash portion of the total sale price of the Property, excluding the Note, is reported in the Company's consolidated statements of cash flows. Interest earned on the Note is recognized in other revenues in the Company's consolidated statements of operations. The Company recognized a gain of approximately $3.3 million on the sale transaction, which is included in other revenues in its consolidated statements of operations. |
Deferred Policy Acquisition Costs |
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Deferred Policy Acquisition Costs Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred Policy Acquisition Costs | Deferred Policy Acquisition Costs Deferred policy acquisition costs were as follows:
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Notes Payable |
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Notes Payable [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes Payable | Notes Payable The following table presents information about the Company's notes payable:
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The Company was in compliance with all of its financial covenants pertaining to minimum statutory surplus, debt to total capital ratio, and risk based capital ("RBC") ratio under the unsecured credit facility at December 31, 2017. Debt maturities for each of the next five years and thereafter as of December 31, 2017 are as follows:
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Derivative Financial Instruments |
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General Discussion of Derivative Instruments and Hedging Activities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Financial Instruments | Derivative Financial Instruments The Company is exposed to certain risks relating to its ongoing business operations. The primary risks managed by using derivative instruments are equity price risk and interest rate risk. Equity contracts (options sold) on various equity securities are intended to manage the price risk associated with forecasted purchases or sales of such securities. The Company also enters into derivative contracts to enhance returns on its investment portfolio. On February 13, 2014, Fannette Funding LLC ("FFL"), a special purpose investment vehicle, formed by and consolidated into the Company, entered into a total return swap agreement with Citibank. Under the agreement, FFL receives the income equivalent on underlying obligations due to Citibank and pays to Citibank interest on the outstanding notional amount of the underlying obligations. The total return swap is secured by approximately $30 million of U.S. Treasuries as collateral, which are included in short-term investments on the consolidated balance sheets. The Company paid interest equal to LIBOR plus 145 basis points prior to the renewal of the agreement in January 2017 and LIBOR plus 128 basis points subsequent to the January 2017 renewal, on approximately $108 million of underlying obligations as of December 31, 2017 and 2016. The agreement had an initial term of one year, subject to annual renewal. In January 2018, the agreement was renewed through August 15, 2018, and the interest rate was changed to LIBOR plus 120 basis points. On August 9, 2013, Animas Funding LLC ("AFL"), a special purpose investment vehicle, formed and consolidated by the Company, entered into a three-year total return swap agreement with Citibank, which has been renewed for an additional one-year term through February 17, 2018. The total portfolio of underlying obligations was liquidated during June 2017, and the total return swap agreement between AFL and Citibank was terminated on July 7, 2017. Under the agreement, AFL received the income equivalent on underlying obligations due to Citibank and paid to Citibank interest on the outstanding notional amount of the underlying obligations. The total return swap was secured by approximately $40 million of U.S. Treasuries as collateral, which were included in short-term investments on the consolidated balance sheets. The Company paid interest, which was equal to LIBOR plus 135 basis points prior to the amendment of the agreement in January 2017 and LIBOR plus 128 basis points subsequent to the amendment, on approximately $152 million of underlying obligations as of December 31, 2016. The following tables present the location and amounts of derivative fair values in the consolidated balance sheets and derivative gains or losses in the consolidated statements of operations:
Most options sold consist of covered calls. The Company writes covered calls on underlying equity positions held as an enhanced income strategy that is permitted for the Company’s insurance subsidiaries under statutory regulations. The Company manages the risk associated with covered calls through strict capital limitations and asset diversification throughout various industries. For additional disclosures regarding equity contracts, see Note 4. Fair Value Measurements for additional disclosures regarding options sold. |
Goodwill and Other Intangible Assets |
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Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Other Intangible Assets | Goodwill and Other Intangible Assets Goodwill There were no changes in the carrying amount of goodwill during 2017 and 2016. Goodwill is reviewed annually for impairment and more frequently if potential impairment indicators exist. No impairment indicators were identified during 2017 and 2016. All of the Company's goodwill is associated with the Property and Casualty business segment (See Note 21. Segment Information for additional information on the reportable business segment). Other Intangible Assets The following table presents the components of other intangible assets:
In 2015, the Company recognized $1.4 million of other intangible assets for a state insurance license related to the acquisition of Workmen's Auto Insurance Company. See Note 20. Acquisition for the acquisition's cost allocation. Other intangible assets are reviewed annually for impairment and more frequently if potential impairment indicators exist. No impairment indicators were identified during 2017 and 2016. Other intangible assets with definite useful lives are amortized on a straight-line basis over their useful lives. Other intangible assets amortization expense was $5.4 million, $6.1 million, and $6.0 million for the years ended December 31, 2017, 2016, and 2015, respectively. None of the intangible assets with definite useful lives are anticipated to have a residual value. The following table presents the estimated future amortization expense related to other intangible assets as of December 31, 2017:
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Income Taxes |
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Components of Income Tax Expense (Benefit), Continuing Operations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes | Income Taxes Income tax provision The Company and its subsidiaries file a consolidated federal income tax return. The income tax expense (benefit) consisted of the following components:
As a result of the Tax Cuts and Jobs Act of 2017 (the "Act"), the Company’s deferred tax assets and liabilities were remeasured using the new corporate tax rate of 21% that is effective for tax years beginning January 1, 2018, rather than the pre-enactment corporate tax rate of 35%. Additionally, the Company recorded a provisional 6.6% sequestration reduction to its alternative minimum tax (“AMT”) credit resulting from repeal of the corporate AMT and reclassification of AMT credit carryforwards to current taxes receivable as a refundable credit. These adjustments resulted in a net tax benefit of approximately $7.4 million, which is reflected in net income for the twelve months ended December 31, 2017. In computing taxable income, property and casualty insurers reduce underwriting income by losses and loss adjustment expenses incurred. The amount of the deduction for losses incurred associated with unpaid losses is discounted at the interest rates and for the loss payment patterns prescribed by the U.S. Treasury. The Act changes the prescribed interest rates to rates based on corporate bond yield curves and extends the applicable time periods for the loss payment pattern. These changes are effective for tax years beginning after 2017 and are subject to a transition rule that spreads the additional tax payments from the amount determined by applying these changes versus the previous calculated amount over the subsequent eight years beginning in 2018. The changes included in the Act related to discounting of unpaid losses are broad and complex. The Securities Exchange Commission has issued rules that would allow for a measurement period of up to one year after the enactment date of the Act to finalize the recording of the related tax impacts. The transitional impact of the Act will be finalized and recorded by the measurement period. The following table presents a reconciliation of the tax expense based on the statutory rate to the Company's actual tax expense (benefit) in the consolidated statements of operations:
Deferred Income Taxes Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial reporting basis and the respective tax basis of the Company’s assets and liabilities, and expected benefits of utilizing net operating loss, capital loss, and tax-credit carryforwards. The ultimate realization of deferred tax assets is dependent upon generating sufficient taxable income of the appropriate character within the carryback and carryforward periods available under the tax law. Management considers the reversal of deferred tax liabilities, projected future taxable income of an appropriate nature, and tax-planning strategies in making this assessment. The Company believes that through the use of prudent tax planning strategies and the generation of capital gains, sufficient income will be realized in order to maximize the full benefits of its deferred tax assets. The following table presents the significant components of the Company’s net deferred tax assets and liabilities:
In accordance with the Act, the Company’s deferred tax assets and liabilities were remeasured using the newly enacted corporate tax rate of 21%. Additionally, the Company’s alternative minimum tax credit carryforward balance of $57.9 million and $47.2 million at December 31, 2017 and 2016, respectively, was reclassified to current income taxes receivable as a refundable credit. The Company believes it will realize the full benefit of the AMT credit no later than the tax year ending December 31, 2021. Uncertainty in Income Taxes The Company recognizes tax benefits related to positions taken, or expected to be taken, on its tax returns, only if the positions are "more-likely-than-not" sustainable. Once this threshold has been met, the Company’s measurement of its expected tax benefits is recognized in its financial statements. There was a $3.3 million decrease to the total amount of unrecognized tax benefits related to tax uncertainties during 2017. The decrease was the result of tax positions taken regarding federal tax credits, settlement of California audit for tax years 2003 through 2010, and state tax apportionment issues based on management’s judgment and latest information available. The Company does not expect any changes in such unrecognized tax benefits to have a material impact on its consolidated financial statements within the next 12 months. The Company and its subsidiaries file income tax returns with the Internal Revenue Service and the taxing authorities of various states. Tax years that remain subject to examination by major taxing jurisdictions are 2014 through 2016 for federal taxes and 2011 through 2016 for California state taxes. For tax years 2003 through 2010, the Company achieved a resolution with the Franchise Tax Board (“FTB”) in December 2017 and paid a $4.6 million negotiated settlement amount in accordance with the settlement agreement provided by the FTB and signed by the Company. The Company believes that resolution of tax years 2003 through 2010 has the potential to establish guidance for future audit assessments proposed by the FTB for future tax years. The Company is currently under examination for tax years 2011 through 2016. For tax years 2011 through 2013, the FTB issued Notices of Proposed Assessments ("NPAs") to the Company, which the Company intends to formally protest. If a reasonable settlement is not reached, the Company intends to pursue other options, including a formal hearing with the FTB, an appeal with the California Office of Tax Appeals, or litigation in Superior Court. For tax years 2014 through 2016, the FTB commenced its audit in December 2017. The Company believes that the resolution of these examinations and assessments will not have a material impact on the consolidated financial statements. The following table presents a reconciliation of the beginning and ending balances of unrecognized tax benefits:
If unrecognized tax benefits were recognized, $10.1 million and $11.8 million, including accrued interest, penalties and federal tax benefit related to unrecognized tax benefits, would impact the Company’s effective tax rate at December 31, 2017 and 2016, respectively. The Company does not expect the total amount of unrecognized tax benefits to materially increase within the next 12 months. The Company recognizes interest and penalties related to unrecognized tax benefits as a part of income taxes. The Company recognized an accrued net (benefit) expense related to interest and penalty of $(1,104,000), $606,000, and $112,000 for the years ended December 31, 2017, 2016, and 2015, respectively. The net benefit for the year ended December 31, 2017 is largely due to reversal of accrued interest and penalty following the settlement with the FTB for tax years 2003 through 2010. The Company carried an accrued interest and penalty balance of $2,417,000 and $3,521,000 at December 31, 2017 and 2016, respectively. |
Losses And Loss Adjustment Expense Reserves |
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Insurance Loss Reserves [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Losses And Loss Adjustment Expense Reserves | Loss and Loss Adjustment Expense Reserves The following table presents the activity in loss and loss adjustment expense reserves:
The increase in the provision for insured events of prior years in 2017 of approximately $54.4 million primarily resulted from higher than estimated losses in California automobile and property lines, which experienced higher loss severity on liability coverages including Bodily Injury and Property Damage and higher loss adjustment expenses than originally estimated. The increase in the provision for insured events of prior years in 2016 of approximately $85.4 million primarily resulted from the California and Florida automobile lines of business which experienced higher loss severity on liability coverages including Bodily Injury, Combined Single Limits and Property Damage than was originally estimated. The increase in the provision for insured events of prior years in 2015 of approximately $12.7 million primarily resulted from the California homeowners and automobile lines of business outside of California, which was partially offset by favorable development in the California automobile line of business. The Company experienced pre-tax catastrophe losses and loss adjustment expenses of approximately $168 million ( $79 million net of reinsurance benefits), $27 million, and $19 million in 2017, 2016, and 2015, respectively. There were no reinsurance benefits used for catastrophe losses in 2016 and 2015. The losses in 2017 were primarily due to wildfires in Northern and Southern California, severe rainstorms in California, and the impact of Hurricane Harvey in Texas and Hurricane Irma in Florida and Georgia. The losses in 2016 were primarily due to severe storms outside of California, and rainstorms in California. The losses in 2015 were primarily due to severe storms outside of California, and rainstorms and wildfires in California. The following is information about incurred and paid claims development as of December 31, 2017, net of reinsurance, as well as cumulative claim frequency and the total of incurred-but-not-reported liabilities plus expected development on reported claims included within the net incurred claims amounts for our two major product lines: automobile and homeowners lines of business. As the information presented is for these two major product lines only, the total incurred and paid claims development shown below does not correspond to the aggregate development presented in the table above, which is for all product lines and includes unallocated claims adjustment expenses. The cumulative number of reported claims represents open claims, claims closed with payment, and claims closed without payment. It does not include an estimated amount for unreported claims. The number of claims is measured by claim event (such as a car accident or storm damage) and an individual claim event may result in more than one reported claim. The Company considers a claim that does not result in a liability as a claim closed without payment. The information about incurred and paid claims development for the years ended December 31, 2008 to 2016 is presented as unaudited supplementary information.
__________ (1) The information for the years 2008 to 2016 is presented as unaudited supplemental information.
__________ (1) The information for the years 2008 to 2016 is presented as unaudited supplemental information.
__________ (1) The information for the years 2008 to 2016 is presented as unaudited supplemental information.
__________ (1) The information for the years 2008 to 2016 is presented as unaudited supplemental information. The following is unaudited supplementary information about average historical claims duration as of December 31, 2017.
The reconciliation of the net incurred and paid claims development tables to the liability for claims and claim adjustment expenses in the consolidated balance sheets is as follows. Reconciliation of the Disclosure of Incurred and Paid Claims Development to the Loss and Loss Adjustment Expense Reserves
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Dividends |
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends | Dividends The following table presents shareholder dividends paid:
The Insurance Companies are subject to the financial capacity guidelines established by their domiciliary states. The payment of dividends from statutory unassigned surplus of the Insurance Companies is restricted, subject to certain statutory limitations. As of December 31, 2017, the insurance subsidiaries of the Company are permitted to pay approximately $167 million in dividends in 2018 to Mercury General without the prior approval of the DOI of domiciliary states. The above statutory regulations may have the effect of indirectly limiting the ability of the Company to pay shareholder dividends. During 2017, 2016, and 2015, the Insurance Companies paid Mercury General ordinary dividends of $109 million, $111 million, and $133 million, respectively. On February 2, 2018, the Board of Directors declared a $0.6250 quarterly dividend payable on March 29, 2018 to shareholders of record on March 15, 2018. |
Statutory Balances and Accounting Practices |
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Statutory Balances And Accounting Practices [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Statutory Balances and Accounting Practices | Statutory Balances and Accounting Practices The Insurance Companies prepare their statutory-basis financial statements in conformity with accounting practices prescribed or permitted by the insurance departments of their domiciliary states. Prescribed statutory accounting practices primarily include those published as statements of statutory accounting principles by the National Association of Insurance Commissioners (the "NAIC"), as well as state laws, regulations, and general administrative rules. Permitted statutory accounting practices encompass all accounting practices not so prescribed. As of December 31, 2017, there were no material permitted statutory accounting practices utilized by the Insurance Companies. The following table presents the statutory net income, and statutory capital and surplus of the Insurance Companies, as reported to regulatory authorities:
__________
The Insurance Companies must comply with minimum capital requirements under applicable state laws and regulations. The RBC formula is used by insurance regulators to monitor capital and surplus levels. It was designed to capture the widely varying elements of risks undertaken by writers of different lines of insurance business having differing risk characteristics, as well as writers of similar lines where differences in risk may be related to corporate structure, investment policies, reinsurance arrangements, and a number of other factors. The Company periodically monitors the RBC level of each of the Insurance Companies. As of December 31, 2017, 2016, and 2015, each of the Insurance Companies exceeded the minimum required RBC level, as determined by the NAIC and adopted by the state insurance regulators. None of the Insurance Companies’ RBC ratios were less than 400% of the authorized control level RBC as of December 31, 2017, 2016 and 2015. Generally, an RBC ratio of 200% or less would require some form of regulatory or company action. |
Profit Sharing Plan and Annual Cash Bonuses |
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Dec. 31, 2017 | |
Deferred Compensation Arrangements [Abstract] | |
Profit Sharing Plan and Annual Cash Bonuses | Profit Sharing Plan and Annual Cash Bonuses The Company’s employees are eligible to become members of the Profit Sharing Plan (the "Plan"). The Company, at the option of the Board of Directors, may make annual contributions to the Plan, and the contributions are not to exceed the greater of the Company’s net income for the plan year or its retained earnings at that date. In addition, the annual contributions may not exceed an amount equal to 15% of the compensation paid or accrued during the year to all participants under the Plan. No contributions were made in the past three years. The Plan includes an option for employees to make salary deferrals under Section 401(k) of the Internal Revenue Code. The matching contributions, at a rate set by the Board of Directors, totaled $8.6 million, $8.2 million, and $8.5 million for 2017, 2016, and 2015, respectively. The Plan also includes an employee stock ownership plan that covers substantially all employees. The Board of Directors authorizes the Plan to purchase the Company’s common stock in the open market for allocation to the Plan participants. No purchases were made during the past three years. The Company also provides company-wide annual cash bonuses to all eligible employees based on performance criteria for each recipient and for the Company as a whole. The Company performance goals were based on the Company's premium growth and combined ratio. The Company paid company-wide annual cash bonuses to all eligible employees of $0.0 million, $16.8 million, and $20.7 million in 2017, 2016, and 2015, respectively. |
Share-Based Compensation |
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Share-Based Compensation | Share-Based Compensation In February 2015, the Company adopted the 2015 Incentive Award Plan (the "2015 Plan"), replacing the 2005 Equity Incentive Plan (the "2005 Plan") which expired in January 2015. The 2015 Plan was approved at the Company's Annual Meeting of Shareholders in May 2015. A maximum of 4,900,000 shares of common stock under the 2015 Plan are authorized for issuance upon exercise of stock options, stock appreciation rights and other awards, or upon vesting of restricted or deferred stock awards. As of December 31, 2017, only stock options and restricted stock unit awards have been granted under these plans.
Stock Option Awards Beginning January 1, 2008, stock options granted, for which the Company has recognized share-based compensation expense, become exercisable at a rate of 25% per year beginning one year from the date granted, are granted at the closing price of the Company's stock on the date of grant, and expire after 10 years. Prior to January 1, 2008, stock options granted became exercisable at a rate of 20% per year. No stock options were awarded in 2017, 2016, and 2015 under the 2015 Plan or 2005 Plan. The fair values of stock options awarded in 2013 under the 2005 Plan were estimated on the dates of grant using a closed-form option valuation model (Black-Scholes). The following table provides the assumptions used in the calculation of grant-date fair values of stock options awarded during 2013 based on the Black-Scholes option pricing model:
Expected volatilities are based on historical volatility of the Company’s stock over the term of the stock options. The Company estimated the expected term of stock options, which represents the period of time that stock options granted are expected to be outstanding, by using historical exercise patterns and post-vesting termination behavior. The risk free interest rate is determined based on U.S. Treasury yields with equivalent remaining terms in effect at the time of the grant. The following table presents a summary of the stock option activity under the Company’s plans for the year ended December 31, 2017:
The aggregate intrinsic values in the table above represent the total pre-tax intrinsic value (the difference between the Company’s closing stock price and the stock option exercise price, multiplied by the number of in-the-money stock options) that would have been received by the stock option holders had all stock options been exercised on December 31, 2017. The aggregate intrinsic values of stock options exercised were $371,000, $591,000, and $303,000 for 2017, 2016, and 2015, respectively. The total fair value of stock options vested during each of 2017, 2016, and 2015 was $142,000. The following table presents information regarding stock options outstanding at December 31, 2017:
As of December 31, 2017, all of stock options outstanding were vested, and no additional compensation expenses related to these stock options will be recognized in the Company's consolidated statements of operations. Restricted Stock Unit Awards Under the 2015 Plan and 2005 Plan, the Compensation Committee of the Company’s Board of Directors granted performance-based vesting restricted stock unit awards to the Company’s senior management and key employees. The following table presents the restricted stock unit grants summary at December 31, 2017:
The following table presents a summary of restricted stock unit awards activity, based on target vesting, during the years indicated:
The restricted stock units vest at the end of a three-year performance period beginning with the year of the grant, and then only if, and to the extent that, the Company’s performance during the performance period achieves the threshold established by the Compensation Committee of the Company’s Board of Directors. For 2015 and 2016 grants, vesting is based on the Company’s cumulative underwriting income, annual underwriting income, and net earned premium growth. As of December 31, 2017, 12,500 and 13,500 target restricted stock units granted in 2016 and 2015, respectively, have been forfeited because the recipients were no longer employed by the Company. Expired shares represent shares that did not meet the vesting requirements. The fair value of each RSU grant was determined based on the closing price of the Company's common stock on the grant date for awards classified as equity and on each reporting date for awards classified as a liability. Compensation cost is recognized based on management’s best estimate of the performance goals that will be achieved. If the minimum performance goals are not met, no compensation cost will be recognized and any recognized compensation cost would be reversed. In March 2017, approximately $3.6 million was paid upon the vesting of 61,445 RSUs awarded in 2014 resulting from the attainment of performance goals above the target threshold during the three-year performance period ended December 31, 2016. In February 2016, 88,074 shares of common stock, net of 58,822 shares withheld for payroll taxes, were issued upon the vesting of 146,896 RSUs awarded in 2013 resulting from the attainment of performance goals above the target threshold during the three-year performance period from 2013 to 2015. At December 31, 2016, the Company determined that it was probable that the Company's Board of Directors would modify the payment method for the vested 2014 grant awards and pay for the vested awards in cash in lieu of shares of the Company's common stock. As a result, the 2014 grants were reclassified from equity to liability awards at December 31, 2016. $3.4 million of the amount previously recognized in additional paid-in capital for the 2014 grant awards was reclassified to other liabilities in the consolidated balance sheets at December 31, 2016. Additional $0.2 million was reclassified from additional paid-in capital to other liabilities at the vesting date of February 28, 2017 for the 2014 grant awards, based on the additional amount of awards vested from December 31, 2016 through the vesting date. |
Earnings Per Share |
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Earnings Per Share Reconciliation [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share | Earnings Per Share The following table presents a reconciliation of the numerators and denominators of the basic and diluted earnings per share calculations:
Potentially dilutive securities representing approximately 0, 27,600, and 67,000 shares of common stock for 2017, 2016, and 2015, respectively, were excluded from the computation of diluted earnings per common share because their effect would have been anti-dilutive. |
Commitments and Contingencies |
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Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies | Commitments and Contingencies Operating Leases The Company is obligated under various non-cancellable lease agreements providing for office space, automobiles, and office equipment that expire at various dates through the year 2023. For leases that contain predetermined escalations of the minimum rentals, the Company recognizes the related rent expense on a straight-line basis and records the difference between the recognized rental expense and amounts payable under the leases as deferred rent in other liabilities. This liability amounted to $1.5 million and $2.4 million at December 31, 2017 and 2016, respectively. Total rent expense under these lease agreements was $14.7 million, $19.7 million, and $16.0 million for 2017, 2016, and 2015, respectively. The following table presents future minimum commitments for operating leases as of December 31, 2017:
California Earthquake Authority ("CEA") The CEA is a quasi-governmental organization that was established to provide a market for earthquake coverage to California homeowners. The Company places all new and renewal earthquake coverage offered with its homeowners policies directly with the CEA. The Company receives a small fee for placing business with the CEA, which is recorded as other income in the consolidated statements of operations. Upon the occurrence of a major seismic event, the CEA has the ability to assess participating companies for losses. These assessments are made after CEA capital has been expended and are based upon each company’s participation percentage multiplied by the amount of the total assessment. Based upon the most recent information provided by the CEA, the Company’s maximum total exposure to CEA assessments at April 3, 2017, the most recent date at which information was available, was approximately $66.2 million. There was no assessment made in 2017. Regulatory Matters In March 2006, the California DOI issued an Amended Notice of Non-Compliance to a Notice of Non-Compliance originally issued in February 2004 (as amended, “2004 NNC”) alleging that the Company charged rates in violation of the California Insurance Code, willfully permitted its agents to charge broker fees in violation of California law, and willfully misrepresented the actual price insurance consumers could expect to pay for insurance by the amount of a fee charged by the consumer's insurance broker. The California DOI sought to impose a fine for each policy on which the Company allegedly permitted an agent to charge a broker fee, to impose a penalty for each policy on which the Company allegedly used a misleading advertisement, and to suspend certificates of authority for a period of one year. In January 2012, the administrative law judge bifurcated the 2004 NNC between (a) the California DOI’s order to show cause (the “OSC”), in which the California DOI asserts the false advertising allegations and accusation, and (b) the California DOI’s notice of noncompliance (the “NNC”), in which the California DOI asserts the unlawful rate allegations. In February 2012, the administrative law judge (“ALJ”) submitted a proposed decision dismissing the NNC, but the Commissioner rejected the ALJ’s proposed decision. The Company challenged the rejection in Los Angeles Superior Court in April 2012, and the Commissioner responded with a demurrer. Following a hearing, the Superior Court sustained the Commissioner’s demurrer, based on the Company’s failure to exhaust its administrative remedies, and the Company appealed. The Court of Appeal affirmed the Superior Court's ruling that the Company was required to exhaust its administrative remedies, but expressly preserved for later appeal the legal basis for the ALJ’s dismissal: violation of the Company’s due process rights. Following an evidentiary hearing in April 2013, post-hearing briefs, and an unsuccessful mediation, the ALJ closed the evidentiary record on April 30, 2014. Although a proposed decision was to be submitted to the Commissioner on or before June 30, 2014, after which the Commissioner would have 100 days to accept, reject or modify the proposed decision, the proposed decision was not submitted until December 8, 2014. On January 7, 2015, the Commissioner adopted the ALJ’s proposed decision, which became the Commissioner’s adopted order (the "Order"). The decision and Order found that from the period July 1, 1996, through 2006, the Company’s "brokers" were actually operating as "de facto agents" and that the charging of "broker fees" by these producers constituted the charging of "premium" in excess of the Company's approved rates, and assessed a civil penalty in the amount of $27.6 million against the Company. On February 9, 2015, the Company filed a Writ of Administrative Mandamus and Complaint for Declaratory Relief (the “Writ”) in the Orange County Superior Court seeking, among other things, to require the Commissioner to vacate the Order, to stay the Order while the Superior Court action is pending, and to judicially declare as invalid the Commissioner’s interpretation of certain provisions of the California Insurance Code. Subsequent to the filing of the Writ, a consumer group petitioned and was granted the right to intervene in the Superior Court action. The Court did not order a stay, and the $27.6 million assessed penalty was paid in March 2015. The Company filed an amended Writ on September 11, 2015, adding an explicit request for a refund of the penalty, with interest. On August 12, 2016, the Superior Court issued its ruling on the Writ, for the most part granting the relief sought by the Company. The Superior Court found that the Commissioner and the California DOI did commit due process violations, but declined to dismiss the case on those grounds. The Superior Court also agreed with the Company that the broker fees at issue were not premium, and that the penalties imposed by the Commissioner were improper, and therefore vacated the Order imposing the penalty. The Superior Court entered final judgment on November 17, 2016, issuing a writ requiring the Commissioner to refund the entire penalty amount within 120 days, plus prejudgment interest at the statutory rate of 7%. On January 12, 2017, the California DOI filed a notice of appeal of the Superior Court's judgment entered on November 17, 2016. While the appeal is still pending, the California DOI returned the entire penalty amount plus accrued interest, a total of $30.9 million, to the Company in June 2017 in order to avoid accruing further interest. Because the matter has been appealed, the Company has not yet recognized the $30.9 million as a gain in the consolidated statements of operations; instead, the Company recorded the $30.9 million plus interest earned, a total of approximately $31.1 million at December 31, 2017, in other liabilities in the consolidated balance sheets. The Company had filed a motion to dismiss the false advertising portion of the case based on the Superior Court's findings, but the ALJ denied that motion after the appeal was filed. The ALJ did, however, grant the Company's alternative request to stay further proceedings pending the final determination of the appeal. The Company has accrued a liability for the estimated cost to continue to defend itself in the false advertising OSC. Based upon its understanding of the facts and the California Insurance Code, the Company does not expect that the ultimate resolution of the false advertising OSC will be material to its financial position. Litigation The Company is, from time to time, named as a defendant in various lawsuits or regulatory actions incidental to its insurance business. The majority of lawsuits brought against the Company relate to insurance claims that arise in the normal course of business and are reserved for through the reserving process. For a discussion of the Company’s reserving methods, see Note 1. Summary of Significant Accounting Policies. The Company also establishes reserves for non-insurance claims related lawsuits, regulatory actions, and other contingencies when the Company believes a loss is probable and is able to estimate its potential exposure. For loss contingencies believed to be reasonably possible, the Company also discloses the nature of the loss contingency and an estimate of the possible loss, range of loss, or a statement that such an estimate cannot be made. While actual losses may differ from the amounts recorded and the ultimate outcome of the Company’s pending actions is generally not yet determinable, the Company does not believe that the ultimate resolution of currently pending legal or regulatory proceedings, either individually or in the aggregate, will have a material adverse effect on its financial condition or cash flows. In all cases, the Company vigorously defends itself unless a reasonable settlement appears appropriate. The Company is also involved in proceedings relating to assessments and rulings made by the FTB. See Note 10. Income Taxes. There are no environmental proceedings arising under federal, state, or local laws or regulations to be discussed. |
Risks and Uncertainties |
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Dec. 31, 2017 | |
Risks and Uncertainties [Abstract] | |
Risks and Uncertainties | Risks and Uncertainties Many businesses are experiencing the effects of uncertain conditions in the global economy and capital markets, reduced consumer spending and confidence, and continued volatility, which could adversely impact the Company’s financial condition, results of operations, and liquidity. Further, volatility in global capital markets could adversely affect the Company’s investment portfolio. The Company is unable to predict the impact of current and future global economic conditions on the United States, and California, where the majority of the Company’s business is produced. The Company applies the fair value option to its investment portfolio. Rapidly changing and unprecedented credit and equity market conditions could materially impact the valuation of securities as reported within the Company’s financial statements, and the period-to-period changes in value could vary significantly. Decreases in market value may have a material adverse effect on the Company’s financial condition or results of operations. |
Quarterly Financial Information (Unaudited) |
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Quarterly Financial Data [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Quarterly Financial Information (Unaudited) | Quarterly Financial Information (Unaudited) The following table presents summarized quarterly financial data for 2017 and 2016:
__________
Net income for 2017 was primarily attributable to net premiums earned, net investment income and net realized investment gains, partially offset by operating expenses, and losses and loss adjustment expenses, including catastrophe losses and unfavorable development on prior accident years' loss and loss adjustment expense reserves. The primary causes of the net income for the fourth quarter of 2017 were the increases in the fair value of the Company’s fixed maturity and equity securities due to the overall market improvement, net investment income, and a net tax benefit of $7.4 million due to the effect of the Act. Net income for 2016 was primarily attributable to net premiums earned and net investment income, partially offset by net realized investment losses, operating expenses, and losses and loss adjustment expenses, including catastrophe losses and unfavorable development on prior accident years' loss and loss adjustment expense reserves. The primary cause of the net loss for the fourth quarter of 2016 was the declines in the fair value of the Company’s fixed maturity securities due to the rising market interest rates. |
Acquisition |
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Dec. 31, 2017 | |
Business Combinations [Abstract] | |
Acquisition | Acquisition Pursuant to an October 22, 2014 Stock Purchase Agreement, the Company purchased all the issued and outstanding shares of Workmen’s Auto Insurance Company ("WAIC"), a California domiciled property and casualty insurance company, on January 2, 2015. WAIC is a Los Angeles-based non-standard, private passenger automobile insurance company that operates predominantly in California. The Company intends to use the WAIC non-standard automobile product to complement the Company’s preferred and standard product offerings. The Company paid $8 million in cash for the shares of WAIC, of which $2 million had been held in escrow for up to three years as security for any loss development on claims incurred on or prior to June 30, 2014. Based on the evaluation performed at the acquisition date and at December 31, 2015, of the claims reserves for WAIC for losses and loss adjustment expenses incurred on or prior to June 30, 2014, the Company estimated that it would recover the $2 million held in escrow and, therefore, the Company deducted it from cash consideration to arrive at the fair value of total consideration transferred. The Company recovered the $2 million held in escrow in 2016. In accordance with regulatory approval requirements, the Company made a $15 million cash capital contribution to WAIC on January 12, 2015. |
Segment Information |
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Segment Information | Segment Information The Company is primarily engaged in writing personal automobile insurance and provides related property and casualty insurance products to its customers through 14 subsidiaries in 11 states, principally in California. The Company has one reportable business segment - the Property and Casualty business segment. The Company’s Chief Operating Decision Maker evaluates operating results based on pre-tax underwriting results which is calculated as net premiums earned less (a) losses and loss adjustment expenses; and (b) underwriting expenses (policy acquisition costs and other operating expenses). Expenses are allocated based on certain assumptions that are primarily related to premiums and losses. The Company’s net investment income, net realized investment gains (losses), other income, and interest expense are excluded in evaluating pre-tax underwriting profit. The Company does not allocate its assets, including investments, or income taxes in evaluating pre-tax underwriting profit. Property and Casualty Lines The Property and Casualty business segment offers several insurance products to the Company’s individual customers and small business customers. These insurance products are: private passenger automobile, which is the Company’s primary business, and related insurance products such as homeowners, commercial automobile and commercial property. These insurance products are primarily sold to the Company’s individual customers and small business customers, which increases retention of the Company’s private personal automobile client base. The insurance products comprising the Property and Casualty business segment are sold through the same distribution channels, mainly through independent and 100% owned insurance agents, and go through a similar underwriting process. Other Lines The Other business segment represents net premiums written and earned from an operating segment that does not meet the quantitative thresholds required to be considered a reportable segment. This operating segment offers automobile mechanical protection warranties which are primarily sold through automobile dealerships and credit unions. The following table presents operating results by reportable segment for the years ended:
The following table presents the Company’s net premiums earned and direct premiums written by line of insurance business for the years ended:
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Summary Of Investments Other Than Investments In Related Parties |
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Summary of Investments, Other than Investments in Related Parties [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary Of Investments Other Than Investments In Related Parties |
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SCHEDULE I, Continued
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Condensed Financial Information of Registrant |
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Condensed Financial Information of Parent Company Only Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Condensed Financial Information of Registrant |
SCHEDULE II, Continued
SCHEDULE II, Continued
The accompanying condensed financial information should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included in this report. Distributions received from Special Purpose Entities On February 13, 2014, Fannette Funding LLC ("FFL"), a special purpose investment vehicle, formed by and consolidated into the Company, entered into a total return swap agreement with Citibank. Under the agreement, FFL receives the income equivalent on underlying obligations due to Citibank and pays to Citibank interest on the outstanding notional amount of the underlying obligations. The total return swap is secured by approximately $30 million of U.S. Treasuries as collateral, which are included in short-term investments on the consolidated balance sheets. The Company paid interest equal to LIBOR plus 145 basis points prior to the renewal of the agreement in January 2017 and LIBOR plus 128 basis points subsequent to the January 2017 renewal, on approximately $108 million of underlying obligations as of December 31, 2017 and 2016. The agreement had an initial term of one year, subject to annual renewal. In January 2018, the agreement was renewed through August 15, 2018, and the interest rate was changed to LIBOR plus 120 basis points. On August 9, 2013, Animas Funding LLC ("AFL"), a special purpose investment vehicle, formed and consolidated by the Company, entered into a three-year total return swap agreement with Citibank, which has been renewed for an additional one-year term through February 17, 2018. The total portfolio of underlying obligations was liquidated during June 2017, and the total return swap agreement between AFL and Citibank was terminated on July 7, 2017. Under the agreement, AFL received the income equivalent on underlying obligations due to Citibank and paid to Citibank interest on the outstanding notional amount of the underlying obligations. The total return swap was secured by approximately $40 million of U.S. Treasuries as collateral, which were included in short-term investments on the consolidated balance sheets. The Company paid interest, which was equal to LIBOR plus 135 basis points prior to the amendment of the agreement in January 2017 and LIBOR plus 128 basis points subsequent to the amendment, on approximately $152 million of underlying obligations as of December 31, 2016. Distributions of $5.2 million and $4.9 million were received in 2017 and 2016, respectively, from these special purpose entities. Dividends received from Subsidiaries Dividends of $109,000,000, $110,800,000 and $133,000,000 were received by Mercury General from its 100% owned insurance subsidiaries in 2017, 2016 and 2015, respectively, and are recorded as a reduction to investment in subsidiaries. Capitalization of Insurance Subsidiaries Mercury General made capital contributions to its insurance subsidiaries of $140,125,000, $30,125,000 and $90,125,000 in 2017, 2016 and 2015, respectively. Business Acquisition Pursuant to an October 22, 2014 Stock Purchase Agreement, Mercury General purchased all the issued and outstanding shares of Workmen’s Auto Insurance Company ("WAIC"), a California domiciled property and casualty insurance company, on January 2, 2015. WAIC is a Los Angeles-based non-standard, private passenger automobile insurance company that operates predominantly in California. Mercury General intends to use the WAIC non-standard automobile product to complement its preferred and standard product offerings. Mercury General paid $8 million in cash for the shares of WAIC, of which $2 million has been held in escrow for up to three years as security for any loss development on claims incurred on or prior to June 30, 2014. Based on the evaluation performed at the acquisition date and at December 31, 2015, of the claims reserves for WAIC for losses and loss adjustment expenses incurred on or prior to June 30, 2014, the Company estimated that it would recover the $2 million held in escrow and, therefore, the Company deducted it from cash consideration to arrive at the fair value of total consideration transferred. The Company recovered the $2 million held in escrow in 2016. In accordance with regulatory approval requirements, the Company made a $15 million cash capital contribution to WAIC on January 12, 2015. Notes Payable On July 2, 2013, Mercury General entered into an unsecured $200 million five-year revolving credit facility. Effective December 3, 2014, Mercury General expanded the borrowing capacity from $200 million to $250 million. Total borrowings were $180 million under the credit facility as of December 31, 2016. The interest rate was approximately 1.73% at December 31, 2016. On March 8, 2017, the $180 million loan and credit facility agreements were terminated and Mercury General repaid the total outstanding amounts with the proceeds from its public offering of $375 million of senior notes. On March 8, 2017, Mercury General completed a public debt offering issuing $375 million of senior notes. The notes are unsecured senior obligations of Mercury General, with a 4.4% annual coupon payable on March 15 and September 15 of each year commencing September 15, 2017. These notes mature on March 15, 2027. The Company used the proceeds from the notes to pay off amounts outstanding under the existing loan and credit facilities and for general corporate purposes. Mercury General incurred debt issuance costs of approximately $3.4 million, inclusive of underwriters' fees. The notes were issued at a slight discount of 99.847% of par, resulting in the effective annualized interest rate, including debt issuance costs, of approximately 4.45%. Commitments and Contingencies The borrowings by MCC, a subsidiary, under the $120 million credit facility and $20 million bank loan were secured by approximately $175 million of municipal bonds owned by MCC, at fair value, held as collateral. The total borrowings of $140 million were guaranteed by Mercury General. On March 8, 2017, these secured credit facility and bank loan agreements were terminated and the Company repaid the total outstanding amounts with the proceeds from its public offering of $375 million of senior notes. On March 29, 2017, Mercury General entered into an unsecured credit agreement that provides for revolving loans of up to $50 million and matures on March 29, 2022. The interest rates on borrowings under the credit facility are based on the Company's debt to total capital ratio and range from LIBOR plus 112.5 basis points when the ratio is under 15% to LIBOR plus 162.5 basis points when the ratio is greater than or equal to 25%. Commitment fees for the undrawn portions of the credit facility range from 12.5 basis points when the ratio is under 15% to 22.5 basis points when the ratio is greater than or equal to 25%. The debt to total capital ratio is expressed as a percentage of (a) consolidated debt to (b) consolidated shareholders' equity plus consolidated debt. The Company's debt to total capital ratio was 17.6% at December 31, 2017, resulting in a 15 basis point commitment fee on the $50 million undrawn portion of the credit facility. As of February 2, 2018, there have been no borrowings under this facility. Federal Income Taxes The Company files a consolidated federal income tax return for the following entities:
The method of allocation between the companies is subject to an agreement approved by the Board of Directors. Allocation is based upon separate return calculations with current credit for net losses incurred by the insurance subsidiaries to the extent it can be used in the current consolidated return. |
Supplemental Reinsurance Premiums |
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Supplementary Insurance Information [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Supplemental Reinsurance Premiums |
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Summary of Significant Accounting Policies (Policy) |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Consolidation and Basis of Presentation | The consolidated financial statements include the accounts of Mercury General Corporation and its subsidiaries:
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The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles ("GAAP"), which differ in some respects from those filed in reports to insurance regulatory authorities. All intercompany transactions and balances have been eliminated. |
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Use of Estimates | The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. These estimates require the Company to apply complex assumptions and judgments, and often the Company must make estimates about effects of matters that are inherently uncertain and will likely change in subsequent periods. The most significant assumptions in the preparation of these consolidated financial statements relate to reserves for losses and loss adjustment expenses. Actual results could differ from those estimates. |
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Investments | Fixed maturity securities include debt securities, which may have fixed or variable principal payment schedules, may be held for indefinite periods of time, and may be used as a part of the Company’s asset/liability strategy or sold in response to changes in interest rates, anticipated prepayments, risk/reward characteristics, liquidity needs, tax planning considerations, or other economic factors. Premiums and discounts on fixed maturities are amortized using first call date and are adjusted for anticipated prepayments. Premiums and discounts on mortgage-backed securities are adjusted for anticipated prepayment using the retrospective method, with the exception of some beneficial interests in securitized financial assets, which are accounted for using the prospective method. Equity securities consist of non-redeemable preferred stocks, common stocks on which dividend income is partially tax-sheltered by the 70% corporate dividend received deduction, and private equity funds. Short-term investments include money market accounts, options, and short-term bonds that are highly rated short duration securities and redeemable within one year. In the normal course of investing activities, the Company either forms or enters into relationships with variable interest entities ("VIEs"). A VIE is an entity that either has investors that lack certain essential characteristics of a controlling financial interest, such as simple majority kick-out rights, or lacks sufficient funds to finance its own activities without financial support provided by other entities. The Company performs ongoing qualitative assessments of the VIEs to determine whether the Company has a controlling financial interest in the VIE and therefore is the primary beneficiary. The Company is deemed to have a controlling financial interest when it has both the ability to direct the activities that most significantly impact the economic performance of the VIE and the obligation to absorb losses or right to receive benefits from the VIE that could potentially be significant to the VIE. Based on the Company's assessment, if it determines it is the primary beneficiary, the Company consolidates the VIE in its consolidated financial statements. The Company forms special purpose investment vehicles to facilitate its investment activities involving derivative instruments such as total return swaps, or limited partnerships such as private equity funds. These special purpose investment vehicles are consolidated VIEs as the Company has determined it is the primary beneficiary of such VIEs. Creditors have no recourse against the Company in the event of default by these VIEs. The Company had no implied or unfunded commitments to these VIEs at December 31, 2017 and 2016. The Company's financial or other support provided to these VIEs and its loss exposure are limited to its collateral and original investment. The Company also invests directly in limited partnerships such as private equity funds. These investments are non-consolidated VIEs as the Company has determined it is not the primary beneficiary. The Company's maximum exposure to loss is limited to the total carrying value that is included in equity securities in the Company's consolidated balance sheets. At December 31, 2017 and 2016, the Company had no outstanding unfunded commitments to these VIEs whereby the Company may be called by the partnerships during the commitment period to fund the purchase of new investments and the expenses of the partnerships. |
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Deferred Policy Acquisition Costs | Deferred policy acquisition costs consist of commissions paid to outside agents, premium taxes, salaries, and certain other underwriting costs that are incremental or directly related to the successful acquisition of new and renewal insurance contracts and are amortized over the life of the related policy in proportion to premiums earned. Deferred policy acquisition costs are limited to the amount that will remain after deducting from unearned premiums and anticipated investment income, the estimated losses and loss adjustment expenses, and the servicing costs that will be incurred as premiums are earned. The Company’s deferred policy acquisition costs are further limited by excluding those costs not directly related to the successful acquisition of insurance contracts. |
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Fixed Assets | Fixed assets are stated at historical cost less accumulated depreciation and amortization. The useful life for buildings is 30 to 40 years. Furniture, equipment, and purchased software are depreciated on a combination of straight-line and accelerated methods over 3 to 7 years. The Company has capitalized certain consulting costs, payroll, and payroll-related costs for employees related to computer software developed for internal use, which are amortized on a straight-line method over the estimated useful life of the software, generally not exceeding 7 years. In accordance with applicable accounting standards, capitalization ceases no later than the point at which a computer software project is substantially complete and ready for its intended use. Leasehold improvements are amortized over the shorter of the useful life of the assets or the life of the associated lease. The Company periodically assesses long-lived assets or asset groups including building and equipment, for recoverability when events or changes in circumstances indicate that their carrying amounts may not be recoverable. If the Company identifies an indicator of impairment, the Company assesses recoverability by comparing the carrying amount of the asset to the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset. An impairment loss is recognized when the carrying amount is not recoverable and is measured as the excess of carrying value over fair value. |
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Goodwill And Other Intangible Assets | Goodwill and other intangible assets arise as a result of business acquisitions and consist of the excess of the cost of the acquisitions over the tangible and intangible assets acquired and liabilities assumed and identifiable intangible assets acquired. Identifiable intangible assets consist of the value of customer relationships, trade names, software and technology, and favorable leases, which are all subject to amortization, and an insurance license which is not subject to amortization. The Company evaluates goodwill and other intangible assets for impairment annually or whenever events or changes in circumstances indicate that it is more likely than not that the carrying amount of goodwill and other intangible assets may exceed their implied fair values. The Company qualitatively determines whether, more likely than not, the fair value exceeds the carrying amount of a reporting unit. There are numerous assumptions and estimates underlying the qualitative assessments including future earnings, long-term strategies, and the Company’s annual planning and forecasting process. If these planned initiatives do not accomplish the targeted objectives, the assumptions and estimates underlying the qualitative assessments could be adversely affected and have a material effect upon the Company’s financial condition and results of operations. |
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Premium Revenue Recognition | Premium revenue is recognized on a pro-rata basis over the terms of the policies in proportion to the amount of insurance protection provided. Premium revenue includes installment and other fees for services which are recognized in the periods in which the services are rendered. Unearned premiums represent the portion of the written premium related to the unexpired policy term. Unearned premiums are predominantly computed monthly on a pro-rata basis and are stated gross of reinsurance deductions, with the reinsurance deduction recorded in other receivables. |
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Losses And Loss Adjustment Expenses | Unpaid losses and loss adjustment expenses are determined in amounts estimated to cover incurred losses and loss adjustment expenses and established based upon the Company’s assessment of claims pending and the development of prior years’ loss liabilities. These amounts include liabilities based upon individual case estimates for reported losses and loss adjustment expenses and estimates of such amounts that are incurred but not reported. Changes in the estimated liability are charged or credited to operations as the losses and loss adjustment expenses are re-estimated. The liability is stated net of anticipated salvage and subrogation recoveries, and gross of reinsurance recoverables on unpaid losses. Estimating loss reserves is a difficult process as many factors can ultimately affect the final settlement of a claim and, therefore, the loss reserve that is required. A key assumption in estimating loss reserves is the degree to which the historical data used to analyze reserves will be predictive of ultimate claim costs on incurred claims. Changes in the regulatory and legal environments, results of litigation, medical costs, the cost of repair materials, and labor rates, among other factors, can impact this assumption. In addition, time can be a critical part of reserving determinations since the longer the span between the incidence of a loss and the payment or settlement of a claim, the more variable the ultimate settlement amount could be. Accordingly, short-tail claims, such as property damage claims, tend to be more reasonably predictable than long-tail liability claims, such as those involving the Company’s bodily injury ("BI") coverages. Management believes that the liability for losses and loss adjustment expenses is adequate to cover the ultimate net cost of losses and loss adjustment expenses incurred to date. However, since the provisions for loss reserves are necessarily based upon estimates, the ultimate liability may be more or less than such provisions. The Company analyzes loss reserves quarterly primarily using the incurred loss, paid loss, average severity coupled with the claim count development methods, and the generalized linear model ("GLM") described below. When deciding among methods to use, the Company evaluates the credibility of each method based on the maturity of the data available and the claims settlement practices for each particular line of insurance business or coverage within a line of insurance business. The Company may also evaluate qualitative factors such as known changes in laws or legal ruling that could affect claims handling or other external environmental factors or internal factors that could affect the settlement of claims. When establishing the loss reserve, the Company will generally analyze the results from all of the methods used rather than relying on a single method. While these methods are designed to determine the ultimate losses on claims under the Company’s policies, there is inherent uncertainty in all actuarial models since they use historical data to project outcomes. The Company believes that the techniques it uses provide a reasonable basis in estimating loss reserves.
The Company analyzes catastrophe losses separately from non-catastrophe losses. For catastrophe losses, the Company generally determines claim counts based on claims reported and development expectations from previous catastrophes and applies an average expected loss per claim based on loss reserves established by adjusters and average losses on previous similar catastrophes. For catastrophe losses on individual properties that are expected to be total losses, the Company typically establishes reserves at the policy limits. |
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Derivative Financial Instruments | The Company accounts for all derivative instruments, other than those that meet the normal purchases and sales exception, as either an asset or liability, measured at fair value, which is based on information obtained from independent parties. In addition, changes in fair value are recognized in earnings unless specific hedge accounting criteria are met. The Company’s derivative instruments include total return swaps and options sold. |
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Earnings per Share | Basic earnings per share excludes dilution and reflects net income divided by the weighted average shares of common stock outstanding during the periods presented. Diluted earnings per share is based on the weighted average shares of common stock and potential dilutive securities outstanding during the periods presented. |
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Income Taxes | At December 31, 2017, |
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Reinsurance | Liabilities for unearned premiums and unpaid losses are stated in the accompanying consolidated financial statements before deductions for ceded reinsurance. Unpaid losses and unearned premiums that are ceded to reinsurers are carried in reinsurance recoverables and other receivables, respectively, in the Company's consolidated balance sheets. Earned premiums are stated net of deductions for ceded reinsurance. The Insurance Companies, as primary insurers, are required to pay losses to the extent reinsurers are unable to discharge their obligations under the reinsurance agreements. |
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Share-Based Compensation | Share-based compensation expense for all stock options granted or modified is based on the estimated grant-date fair value. The Company recognizes these compensation costs on a straight-line basis over the requisite service period of the award, which is the option vesting term of four or five years for options granted prior to 2008 and four years for options granted subsequent to January 1, 2008, for only those shares expected to vest. The fair value of stock option awards is estimated using the Black-Scholes option pricing model with the grant-date assumptions and weighted-average fair values. The fair value of each restricted stock unit grant was determined based on the market price on the grant date for awards classified as equity and on each reporting date for awards classified as a liability. Compensation cost is recognized based on management’s best estimate of the performance goals that will be achieved. If such goals are not met, no compensation cost is recognized and any recognized compensation cost would be reversed. |
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Recently Issued Accounting Standards | Recently Issued Accounting Standards In May 2017, the FASB issued Accounting Standards Update ("ASU") 2017-09, "Compensation - Stock Compensation (Topic 718), Scope of Modification Accounting." ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU 2017-09 is effective for the Company beginning January 1, 2018. The Company does not anticipate that ASU 2017-09 will have a material impact on its consolidated financial statements and related disclosures. In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment." ASU 2017-04 removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of Step 2 of the goodwill impairment test and requires an entity to recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU 2017-04 will be effective for the Company beginning January 1, 2020 with early adoption permitted. The Company does not anticipate that ASU 2017-04 will have a material impact on its consolidated financial statements and related disclosures. In October 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory." ASU 2016-16 requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. ASU 2016-16 is effective for the Company beginning January 1, 2018. The Company does not anticipate that ASU 2016-16 will have a material impact on its consolidated financial statements and related disclosures. In August 2016, the FASB issued ASU 2016-15, "Classification of Certain Cash Receipts and Cash Payments (Topic 230)." The new guidance is intended to reduce diversity in how certain transactions are classified in the consolidated statement of cash flows. ASU 2016-15 is effective for the Company beginning January 1, 2018. The Company does not anticipate that ASU 2016-15 will have a material impact on its consolidated financial statements and related disclosures. In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326)." The amendments in this ASU replace the "incurred loss" methodology for recognizing credit losses with a methodology that reflects expected credit losses and requires consideration of a broader range of information including past events, current conditions and reasonable and supportable forecasts that affect the collectibility of reported amounts of financial assets that are not accounted for at fair value through net income, such as loans, certain debt securities, trade receivables, net investment in leases, off-balance sheet credit exposures and reinsurance receivables. Under the current GAAP incurred loss methodology, recognition of the full amount of credit losses is generally delayed until the loss is probable of occurring. Current GAAP restricts the ability to record credit losses that are expected, but do not yet meet the probability threshold. ASU 2016-13 will be effective for the Company beginning with the first quarter ending March 31, 2020. While the Company is in the process of evaluating the impact of ASU 2016-13, it does not expect this ASU to have a material impact on its consolidated financial statements and related disclosures as most of its financial instruments with potential exposure to material credit losses are accounted for at fair value through net income. In March 2016, the FASB issued ASU 2016-09, "Compensation - Stock Compensation (Topic 718)," which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The Company adopted ASU 2016-09 for the quarter ended March 31, 2017. As a result of the adoption, the Company recognizes excess tax benefits in its provision for income taxes rather than paid-in capital. Additional amendments to accounting for income taxes and minimum statutory withholding tax requirements had no impact to retained earnings as of January 1, 2017, where the cumulative effect of these changes are required to be recorded. The Company elected to continue to estimate forfeitures expected to occur to determine the amount of compensation cost to be recognized in each period. The Company also elected to apply the presentation requirements for cash flows related to excess tax benefits retrospectively to all periods presented, which resulted in an increase to both net cash provided by operating activities and net cash used in financing activities of approximately $913,000 and $27,000 for 2016 and 2015, respectively. The adoption of the presentation requirements for cash flows related to employee taxes paid with shares resulted in an increase to both net cash provided by operating activities and net cash used in financing activities of approximately $3,292,000 and $0 for 2016 and 2015, respectively. In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)," which supersedes the guidance in Accounting Standards Codification ("ASC") 840, "Leases." ASU 2016-02 requires a lessee to recognize lease assets and lease liabilities resulting from all leases. ASU 2016-02 retains the distinction between a finance lease and an operating lease. Lessor accounting is largely unchanged from ASC 840. ASU 2016-02 will be effective for the Company beginning January 1, 2019. However, in transition, the Company will be required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. While the Company is in the process of evaluating the impact of ASU 2016-02, it does not expect this ASU to have a material impact on its consolidated financial statements, except for recognizing lease assets and lease liabilities for its operating leases. The Company's lease obligations under various non-cancellable operating lease agreements amounted to approximately $32,000,000 at December 31, 2017. In January 2016, the FASB issued ASU 2016-01, "Financial Instruments-Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities." The amendments in this ASU address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU 2016-01: (1) requires equity investments (except those accounted for under the equity method or those that result in the consolidation of the investee) to be measured at fair value with changes in the fair value recognized in net income; (2) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (3) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (4) requires the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (5) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the notes to the financial statements; and (6) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. ASU 2016-01 is effective for the Company beginning January 1, 2018. The Company does not anticipate that ASU 2016-01 will have a material impact on its consolidated financial statements and related disclosures. In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)." ASU 2014-09 requires entities to apply a five-step model to determine the amount and timing of revenue recognition. The model specifies, among other criteria, that revenue should be recognized when an entity transfers control of goods or services to a customer in the amount to which the entity expects to be entitled. In August 2015, the FASB issued ASU 2015-14, "Revenue from Contracts with Customers (Topic 606), Deferral of the Effective Date," which deferred the effective date of ASU 2014-09 for the Company to January 1, 2018. Subsequently, the FASB has issued additional ASUs on Topic 606 that do not change the core principle of the guidance in ASU 2014-09 but merely clarify certain aspects of it. The additional ASUs is also effective for the Company beginning January 1, 2018. Two methods of transition are permitted upon adoption: full retrospective and modified retrospective. The Company adopted ASU 2014-09 along with the related additional ASUs on Topic 606 on January 1, 2018, using the modified retrospective transition method. |
Summary of Significant Accounting Policies Summary of Significant Accounting Policies (Tables) |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Deferred Policy Acquisition Cost Amortization and Net Advertising Expense [Table Text Block] | The table below presents a summary of deferred policy acquisition cost amortization and net advertising expense:
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Fair Value of Financial Instruments (Tables) |
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Financial Instruments, Owned, at Fair Value [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Estimated Fair Values of Financial Instruments | The following table presents the fair values of financial instruments:
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Investments (Tables) |
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Gains And Losses Due To Changes In Fair Value | The following table presents gains (losses) due to changes in fair value of investments that are measured at fair value pursuant to application of the fair value option:
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Gross Gains And Losses Realized On Sales Of Investments | ross gains (losses) realized on the sales of investments:
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Estimated Fair Values Of Investments | The following table presents the estimated fair values of the Company's fixed maturity securities at December 31, 2017 by contractual maturity. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
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Investment Income | The following table presents a summary of net investment income:
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Fair Value Measurements (Tables) |
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Financial Instruments, Financial Assets, Balance Sheet Groupings [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule Of Assets And Liabilities Measured At Fair Value On A Recurring Basis Valuation Techniques | The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis, and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair values:
__________ (1) The fair value is measured using the NAV practical expedient; therefore, it is not categorized within the fair value hierarchy. The fair value amount is presented in this table to permit reconciliation of the fair value hierarchy to the amounts presented in the Company's consolidated balance sheets.
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Summary Of Changes In Fair Value Of Level 3 Financial Assets And Financial Liabilities Held At Fair Value | The following table presents a summary of changes in fair value of Level 3 financial assets:
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Schedule of Carrying Values and Estimated Fair Values of Debt Instruments | The following tables present the carrying value and fair value of the Company’s financial instruments disclosed, but not carried, at fair value, and the level within the fair value hierarchy at which such instruments are categorized:
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Fixed Assets (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule Of Fixed Assets | The following table presents the components of fixed assets:
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Deferred Policy Acquisition Costs (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred Policy Acquisition Costs Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule Of Deferred Policy Acquisition Costs | Deferred policy acquisition costs were as follows:
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Notes Payable (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes Payable [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Long-term Debt Instruments |
__________
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Schedule of Maturities of Long-term Debt |
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Derivative Financial Instruments (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
General Discussion of Derivative Instruments and Hedging Activities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary Of Location And Amounts Of Derivative Fair Values In The Consolidated Balance Sheets | The following tables present the location and amounts of derivative fair values in the consolidated balance sheets and derivative gains or losses in the consolidated statements of operations:
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Schedule Of Derivative Gains And Losses In The Consolidated Statements Of Operations |
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Goodwill and Other Intangible Assets (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule Of Components Of Other Intangible Assets | The following table presents the components of other intangible assets:
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Schedule Of Estimated Future Amortization Expense Related To Intangible Assets | The following table presents the estimated future amortization expense related to other intangible assets as of December 31, 2017:
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Income Taxes (Tables) |
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Components of Income Tax Expense (Benefit), Continuing Operations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components Of Income Tax Expense | The income tax expense (benefit) consisted of the following components:
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Reconciliation Of Income Taxes | 35%. Additionally, the Company recorded a provisional 6.6% sequestration reduction to its alternative minimum tax (“AMT”) credit resulting from repeal of the corporate AMT and reclassification of AMT credit carryforwards to current taxes receivable as a refundable credit. These adjustments resulted in a net tax benefit of approximately $7.4 million, which is reflected in net income for the twelve months ended December 31, 2017. In computing taxable income, property and casualty insurers reduce underwriting income by losses and loss adjustment expenses incurred. The amount of the deduction for losses incurred associated with unpaid losses is discounted at the interest rates and for the loss payment patterns prescribed by the U.S. Treasury. The Act changes the prescribed interest rates to rates based on corporate bond yield curves and extends the applicable time periods for the loss payment pattern. These changes are effective for tax years beginning after 2017 and are subject to a transition rule that spreads the additional tax payments from the amount determined by applying these changes versus the previous calculated amount over the subsequent eight years beginning in 2018. The changes included in the Act related to discounting of unpaid losses are broad and complex. The Securities Exchange Commission has issued rules that would allow for a measurement period of up to one year after the enactment date of the Act to finalize the recording of the related tax impacts. The transitional impact of the Act will be finalized and recorded by the measurement period. The following table presents a reconciliation of the tax expense based on the statutory rate to the Company's actual tax expense (benefit) in the consolidated statements of operations:
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Deferred Tax Assets And Liabilities | The following table presents the significant components of the Company’s net deferred tax assets and liabilities:
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Summary Of Unrecognized Tax Benefits | The following table presents a reconciliation of the beginning and ending balances of unrecognized tax benefits:
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Losses And Loss Adjustment Expense Reserves (Tables) |
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Insurance Loss Reserves [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Activity In The Reserves For Losses And Loss Adjustment Expenses | The following table presents the activity in loss and loss adjustment expense reserves:
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Incurred and Paid Claims Development | The information about incurred and paid claims development for the years ended December 31, 2008 to 2016 is presented as unaudited supplementary information.
__________ (1) The information for the years 2008 to 2016 is presented as unaudited supplemental information.
__________ (1) The information for the years 2008 to 2016 is presented as unaudited supplemental information.
__________ (1) The information for the years 2008 to 2016 is presented as unaudited supplemental information.
__________ (1) The information for the years 2008 to 2016 is presented as unaudited supplemental information. |
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Schedule of Historical Claims Duration | The following is unaudited supplementary information about average historical claims duration as of December 31, 2017.
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Reconciliation of the Disclosure of Incurred and Paid Claims Development to the Loss and Loss Adjustment Expense Reserves | The reconciliation of the net incurred and paid claims development tables to the liability for claims and claim adjustment expenses in the consolidated balance sheets is as follows. Reconciliation of the Disclosure of Incurred and Paid Claims Development to the Loss and Loss Adjustment Expense Reserves
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Dividends (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends Paid In Total And Per Share | The following table presents shareholder dividends paid:
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Statutory Balances and Accounting Practices (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Statutory Balances And Accounting Practices [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule Of Statutory Net Income And Capital And Surplus | The following table presents the statutory net income, and statutory capital and surplus of the Insurance Companies, as reported to regulatory authorities:
__________
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Share-Based Compensation (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Cash Proceeds Received from Share-based Payment Awards |
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Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions | The following table provides the assumptions used in the calculation of grant-date fair values of stock options awarded during 2013 based on the Black-Scholes option pricing model:
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Summary of Stock Option Activity | The following table presents a summary of the stock option activity under the Company’s plans for the year ended December 31, 2017:
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Schedule of Options Authorized under Stock Option Plans, by Exercise Price Range | The following table presents information regarding stock options outstanding at December 31, 2017:
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Summary of Grants | The following table presents the restricted stock unit grants summary at December 31, 2017:
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Summary of Vested And Unvested RSU | The following table presents a summary of restricted stock unit awards activity, based on target vesting, during the years indicated:
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Earnings Per Share (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share Reconciliation [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation Of Numerators And Denominators Of Basic And Diluted Earnings Per Share | The following table presents a reconciliation of the numerators and denominators of the basic and diluted earnings per share calculations:
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Commitments and Contingencies (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||
Future Minimum Commitments For Operating Leases | The following table presents future minimum commitments for operating leases as of December 31, 2017:
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Quarterly Financial Information (Unaudited) (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Quarterly Financial Data [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary Of Quarterly Financial Data | The following table presents summarized quarterly financial data for 2017 and 2016:
__________
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Segment Information (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of operating results by reportable segment | The following table presents operating results by reportable segment for the years ended:
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Schedule direct premiums attributable to segment | The following table presents the Company’s net premiums earned and direct premiums written by line of insurance business for the years ended:
|
Summary of Significant Accounting Policies - Summary of Deferred Policy Acquisition Cost Amortization and Net Advertising Expense (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Accounting Policies [Abstract] | |||
Deferred policy acquisition cost amortization | $ 555,350 | $ 562,545 | $ 539,231 |
Advertising expenses | $ 37,400 | $ 39,600 | $ 44,000 |
Fair Value of Financial Instruments (Narrative) (Details) - USD ($) $ in Thousands |
Dec. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Other liabilities | $ 224,877 | $ 229,335 |
Liabilities fair value | 1,323 | 785 |
Unsecured Debt [Member] | ||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Liabilities fair value | 375,000 | |
Secured Notes One [Member] | ||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Secured loan | 120,000 | |
Secured Notes Two [Member] | ||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Secured loan | 20,000 | |
Equity Contract [Member] | ||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Liabilities fair value | $ 123 | $ 20 |
Fair Value of Financial Instruments (Estimated Fair Values Of Financial Instruments) (Details) - USD ($) $ in Thousands |
Dec. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Liabilities | ||
Liabilities fair value | $ 1,323 | $ 785 |
Investments [Member] | ||
Assets | ||
Assets | 3,732,728 | 3,547,560 |
Notes Receivable [Member] | ||
Assets | ||
Assets | 5,565 | 0 |
Total Return Swap [Member] | ||
Liabilities | ||
Liabilities fair value | 1,200 | 765 |
Equity Contract [Member] | ||
Liabilities | ||
Liabilities fair value | 123 | 20 |
Total Return Swap [Member] | ||
Assets | ||
Assets | 0 | 667 |
Secured Debt [Member] | Borrowings [Member] | ||
Liabilities | ||
Liabilities fair value | 0 | 140,000 |
Unsecured Debt [Member] | ||
Liabilities | ||
Liabilities fair value | 375,000 | |
Unsecured Debt [Member] | Borrowings [Member] | ||
Liabilities | ||
Liabilities fair value | $ 385,583 | $ 180,000 |
Investments (Gross Gains And Losses Realized On Sales Of Investments) (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Fixed Maturity Securities [Member] | |||
Investments [Line Items] | |||
Gross Realized Gains | $ 604 | $ 3,327 | $ 631 |
Gross Realized Losses | (2,701) | (19,133) | (495) |
Net | (2,097) | (15,806) | 136 |
Equity Securities [Member] | |||
Investments [Line Items] | |||
Gross Realized Gains | 20,835 | 29,446 | 41,305 |
Gross Realized Losses | (23,048) | (29,945) | (58,764) |
Net | (2,213) | (499) | (17,459) |
Short-term Investments [Member] | |||
Investments [Line Items] | |||
Gross Realized Gains | 21 | 6 | 0 |
Gross Realized Losses | (20) | (530) | (1,396) |
Net | $ 1 | $ (524) | $ (1,396) |
Investments (Estimated Fair Value Of Investments) (Details) - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Fixed maturity securities: | ||
Due in one year or less | $ 200,963 | |
Due after one year through five years | 532,344 | |
Due after five years through ten years | 286,031 | |
Due after ten years | 1,873,439 | |
Total | $ 2,892,777 | $ 2,814,553 |
External credit rating, non investment grade [Member] | ||
Credit Derivatives [Line Items] | ||
Percentage of fixed maturities | 3.40% |
Investments (Investment Income) (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Investments [Line Items] | |||
Total investment income | $ 130,097 | $ 127,676 | $ 131,785 |
Less: Investment expense | (5,167) | (5,805) | (5,486) |
Net investment income | 124,930 | 121,871 | 126,299 |
Fixed Maturity Securities [Member] | |||
Investments [Line Items] | |||
Total investment income | 102,790 | 104,111 | 108,122 |
Equity Securities [Member] | |||
Investments [Line Items] | |||
Total investment income | 18,554 | 14,629 | 14,630 |
Short-term Investments [Member] | |||
Investments [Line Items] | |||
Total investment income | $ 8,753 | $ 8,936 | $ 9,033 |
Fair Value Measurements (Summary Of Changes In Fair Value Of Level 3 Financial Assets And Financial Liabilities Held At Fair Value) (Details) - Partnership Interest in a Private Credit Fund [Member] - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward] | ||
Beginning Balance | $ 9,068 | $ 10,431 |
Net realized gains (losses) included in earnings | 691 | (1,363) |
Purchases | 1,481 | 0 |
Sales | (9,759) | 0 |
Ending Balance | 1,481 | 9,068 |
The amount of total gains (losses) for the period included in earnings attributable to assets still held at December 31 | $ 0 | $ (1,363) |
Fixed Assets (Details) $ in Thousands |
1 Months Ended | 12 Months Ended | ||
---|---|---|---|---|
Aug. 31, 2017
USD ($)
a
|
Dec. 31, 2017
USD ($)
|
Dec. 31, 2016
USD ($)
|
Dec. 31, 2015
USD ($)
|
|
Property, Plant and Equipment [Abstract] | ||||
Land | $ 18,152 | $ 26,770 | ||
Buildings and improvements | 136,827 | 134,952 | ||
Furniture and equipment | 118,647 | 114,156 | ||
Capitalized software | 202,488 | 190,092 | ||
Leasehold improvements | 9,632 | 9,369 | ||
Fixed assets, gross | 485,746 | 475,339 | ||
Less accumulated depreciation and amortization | (340,523) | (319,429) | ||
Fixed assets, net | 145,223 | 155,910 | ||
Depreciation expense | $ 21,100 | $ 20,200 | $ 20,500 | |
Number of acres | a | 6 | |||
Proceeds from Sale of Property, Plant, and Equipment | $ 12,200 | |||
Promissory note received in sale of land | $ 5,700 | |||
Interest rate on promissory note | 3.50% | |||
Gain on sale of land | $ 3,300 |
Deferred Policy Acquisition Costs (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Movement Analysis of Deferred Policy Acquisition Costs [Roll Forward] | |||
Balance, beginning of year | $ 200,826 | $ 201,762 | $ 197,202 |
Policy acquisition costs deferred | 552,675 | 561,610 | 543,791 |
Amortization | (555,350) | (562,546) | (539,231) |
Balance, end of year | $ 198,151 | $ 200,826 | $ 201,762 |
Notes Payable (Schedule of Maturities of Debt) (Details) $ in Thousands |
Dec. 31, 2017
USD ($)
|
---|---|
Notes Payable [Abstract] | |
2018 | $ 0 |
2019 | 0 |
2020 | 0 |
2021 | 0 |
2022 | 0 |
Thereafter | 375,000 |
Total | $ 375,000 |
Derivative Financial Instruments (Narrative) (Details) - Swap [Member] - USD ($) $ in Millions |
1 Months Ended | 12 Months Ended | |||||
---|---|---|---|---|---|---|---|
Feb. 13, 2014 |
Aug. 09, 2013 |
Jan. 31, 2017 |
Dec. 31, 2017 |
Jan. 31, 2018 |
Jul. 07, 2017 |
Dec. 31, 2016 |
|
FFL [Member] | |||||||
Derivative Financial Instruments [Line Items] | |||||||
Swap agreement collateral | $ 30 | ||||||
Notional amount | $ 108 | ||||||
Term of swap agreement | 1 year | 1 year | |||||
FFL [Member] | LIBOR [Member] | |||||||
Derivative Financial Instruments [Line Items] | |||||||
Basis spread on variable rate | 1.45% | 1.28% | 1.45% | ||||
AFL [Member] | |||||||
Derivative Financial Instruments [Line Items] | |||||||
Swap agreement collateral | $ 40 | ||||||
Notional amount | $ 152 | ||||||
Term of swap agreement | 3 years | 1 year | |||||
AFL [Member] | LIBOR [Member] | |||||||
Derivative Financial Instruments [Line Items] | |||||||
Basis spread on variable rate | 1.35% | 1.28% | 1.35% | ||||
Scenario, forecast [Member] | FFL [Member] | LIBOR [Member] | |||||||
Derivative Financial Instruments [Line Items] | |||||||
Basis spread on variable rate | 1.20% |
Derivative Financial Instruments (Summary Of Location And Amounts Of Derivative Fair Values In The Consolidated Balance Sheets) (Details) - USD ($) $ in Thousands |
Dec. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Derivative Financial Instruments [Line Items] | ||
Asset Derivatives | $ 0 | $ 667 |
Liability Derivatives | 1,323 | 785 |
Not Designated as Hedging Instrument [Member] | Interest rate swap agreements [Member] | Other Assets [Member] | ||
Derivative Financial Instruments [Line Items] | ||
Asset Derivatives | 0 | 667 |
Liability Derivatives | 0 | 0 |
Not Designated as Hedging Instrument [Member] | Interest rate swap agreements [Member] | Other liabilities [Member] | ||
Derivative Financial Instruments [Line Items] | ||
Asset Derivatives | 0 | 0 |
Liability Derivatives | 1,200 | 765 |
Not Designated as Hedging Instrument [Member] | Equity contracts [Member] | Other liabilities [Member] | ||
Derivative Financial Instruments [Line Items] | ||
Asset Derivatives | 0 | 0 |
Liability Derivatives | $ 123 | $ 20 |
Derivative Financial Instruments (Schedule Of Derivative Gains And Losses In The Consolidated Statements Of Operations) (Details) - Not Designated as Hedging Instrument [Member] - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Derivative Financial Instruments [Line Items] | |||
(Losses) Gains Recognized in Income | $ 154 | $ 15,379 | $ (3,357) |
Total Return Swap [Member] | Net realized investment gains [Member] | |||
Derivative Financial Instruments [Line Items] | |||
(Losses) Gains Recognized in Income | (2,137) | 11,533 | (6,438) |
Equity contracts [Member] | Net realized investment gains [Member] | |||
Derivative Financial Instruments [Line Items] | |||
(Losses) Gains Recognized in Income | $ 2,291 | $ 3,846 | $ 3,081 |
Goodwill and Other Intangible Assets (Narrative) (Details) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Acquired Finite-Lived Intangible Assets [Line Items] | |||
Intangible assets amortization expense | $ 5.4 | $ 6.1 | $ 6.0 |
Insurance license [Member] | Workmen's Auto Insurance Company [Member] | |||
Acquired Finite-Lived Intangible Assets [Line Items] | |||
Intangible assets acquired | $ 1.4 |
Goodwill and Other Intangible Assets (Schedule Of Estimated Future Amortization Expense Related To Intangible Assets) (Details) $ in Thousands |
Dec. 31, 2017
USD ($)
|
---|---|
Goodwill and Intangible Assets Disclosure [Abstract] | |
2018 | $ 5,427 |
2019 | 4,997 |
2020 | 850 |
2021 | 830 |
2022 | 806 |
Thereafter | 6,418 |
Net Carrying Amount | $ 19,328 |
Income Taxes (Narrative) (Details) - USD ($) |
1 Months Ended | 12 Months Ended | ||
---|---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Components of Income Tax Expense (Benefit), Continuing Operations [Abstract] | ||||
Income tax expense (benefit) | $ (7,400,000) | |||
Provisional reduction to AMT credit | 6.60% | |||
AMT credit carryforward | $ 57,900,000 | $ 57,900,000 | $ 47,200,000 | |
Net decrease of unrecognized tax benefits | (3,300,000) | |||
Tax settlement paid | 4,600,000 | |||
Unrecognized tax benefits that would impact effective tax rate | 10,100,000 | 10,100,000 | 11,800,000 | |
Interest and penalty expense, excluding refunds | (1,104,000) | 606,000 | $ 112,000 | |
Accrued interest and penalty | $ 2,417,000 | $ 2,417,000 | $ 3,521,000 |
Income Taxes (Components Of Income Tax Expense) (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Federal | |||
Current | $ 10,898 | $ 17,444 | $ 21,942 |
Deferred | 10,934 | (21,947) | (25,594) |
Total | 21,832 | (4,503) | (3,652) |
State | |||
Current | 955 | 2,239 | 943 |
Deferred | (579) | (56) | (1,203) |
Total | 376 | 2,183 | (260) |
Total, Current | 11,853 | 19,683 | 22,885 |
Total, Deferred | 10,355 | (22,003) | (26,797) |
Income tax expense (benefit) | $ 22,208 | $ (2,320) | $ (3,912) |
Income Taxes (Reconciliation Of Income Taxes) (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Components of Income Tax Expense (Benefit), Continuing Operations [Abstract] | |||
Computed tax expense at 35% | $ 58,480 | $ 24,753 | $ 24,699 |
Tax-exempt interest income | (26,038) | (26,197) | (26,993) |
Dividends received deduction | (2,296) | (2,303) | (1,613) |
State tax expense | 158 | 1,907 | (287) |
Nondeductible expenses | 348 | 303 | 575 |
Cumulative impact from change in tax rate | (11,449) | 0 | 0 |
Reduction of AMT credit carryforward due to sequestration | 4,088 | 0 | 0 |
Other, net | (1,083) | (783) | (293) |
Income tax expense (benefit) | $ 22,208 | $ (2,320) | $ (3,912) |
Income Taxes (Summary Of Unrecognized Tax Benefits) (Details) - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Reconciliation of Unrecognized Tax Benefits [Roll Forward] | ||
Balance at January 1 | $ 12,954 | $ 12,165 |
Additions based on tax positions related to the current year | 85 | 688 |
Reductions based on tax positions related to prior years | (3,365) | |
Additions based on tax positions related to prior years | 101 | |
Additions (reductions) as a result of lapse of the applicable statute of limitations | 0 | 0 |
Balance at December 31 | $ 9,674 | $ 12,954 |
Losses And Loss Adjustment Expense Reserves (Narrative) (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Unusual or Infrequent Item, or Both [Line Items] | |||
Prior year claims and claim adjustment expense | $ 54,431 | $ 85,369 | $ 12,658 |
Catastrophe [Member] | |||
Unusual or Infrequent Item, or Both [Line Items] | |||
Pre-tax catastrophe losses | 168,000 | $ 27,000 | $ 19,000 |
Pre-tax catastrophe losses, net of reinsurance benefits | $ 79,000 |
Losses And Loss Adjustment Expense Reserves (Activity In The Reserves For Losses And Loss Adjustment Expenses) (Details) - USD ($) $ in Thousands |
12 Months Ended | |||
---|---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Liability for Unpaid Claims and Claims Adjustment Expense [Roll Forward] | ||||
Gross reserves at January 1 | $ 1,290,248 | $ 1,146,688 | $ 1,091,797 | |
Reinsurance recoverables on unpaid losses | 64,001 | 13,161 | 14,253 | $ 14,192 |
Net reserves at January 1 | 1,277,087 | 1,132,435 | 1,077,605 | |
Acquisition of WAIC reserves | 0 | 0 | 18,677 | |
Incurred losses and loss adjustment expense related to: | ||||
Current year | 2,390,453 | 2,269,769 | 2,132,837 | |
Prior year claims and claim adjustment expense | 54,431 | 85,369 | 12,658 | |
Total incurred losses and loss adjustment expenses | 2,444,884 | 2,355,138 | 2,145,495 | |
Loss and loss adjustment expense payments related to: | ||||
Current year | 1,550,789 | 1,508,362 | 1,455,245 | |
Prior years | 724,570 | 702,124 | 654,097 | |
Total payments | 2,275,359 | 2,210,486 | 2,109,342 | |
Net reserves at year-end | 1,446,612 | 1,277,087 | 1,132,435 | |
Gross reserves at year-end | $ 1,510,613 | $ 1,290,248 | $ 1,146,688 |
Dividends (Dividends Paid In Total And Per Share) (Details) - USD ($) $ / shares in Units, $ in Thousands |
12 Months Ended | |||
---|---|---|---|---|
Feb. 02, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Dividends [Abstract] | ||||
Total paid | $ 137,886 | $ 137,201 | $ 136,386 | |
Per share (in dollars per share) | $ 2.4925 | $ 2.4825 | $ 2.4725 | |
Maximum dividend payable without prior permission of DOI of states domicile | $ 167,000 | |||
Payments of ordinary dividends | $ 109,000 | $ 111,000 | $ 133,000 | |
Subsequent Event [Member] | ||||
Subsequent Event [Line Items] | ||||
Quarterly dividend declared (in dollars per share) | $ 0.6250 |
Statutory Balances and Accounting Practices (Schedule Of Statutory Net Income And Capital And Surplus) (Details) - USD ($) $ in Thousands |
12 Months Ended | ||||
---|---|---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|||
Statutory Balances And Accounting Practices [Abstract] | |||||
Statutory net income | [1] | $ 117,376 | $ 82,359 | $ 123,984 | |
Statutory capital and surplus | $ 1,589,226 | $ 1,441,571 | $ 1,451,950 | ||
RBC authorized control level | 400.00% | 400.00% | 400.00% | ||
Minimum RBC authorized control level | 200.00% | 200.00% | 200.00% | ||
|
Profit Sharing Plan and Annual Cash Bonuses (Details) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Deferred Compensation Arrangements [Abstract] | |||
Maximum percentage of compensation employee is allowed to contribute | 15.00% | ||
Matching contributions | $ 8.6 | $ 8.2 | $ 8.5 |
Bonus expense, cash | $ 0.0 | $ 16.8 | $ 20.7 |
Share-Based Compensation (Share-based Compensation Expense) (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||
Cash received from stock option exercises | $ 2,162 | $ 1,632 | $ 2,111 |
Compensation cost, all share-based awards | 60 | 142 | 5,208 |
Excess tax benefits related to share-based compensation | $ (8) | $ 913 | $ 27 |
Share-Based Compensation (Stock Option Valuation Assumptions) (Details) - Stock Options [Member] |
12 Months Ended |
---|---|
Dec. 31, 2013
$ / shares
| |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Weighted-average grant-date fair value | $ 7.11 |
Weighted-average expected volatility | 33.17% |
Expected term | 72 months |
Minimum [Member] | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Expected volatility | 33.16% |
Risk-free interest rate | 0.88% |
Expected dividend yield | 5.40% |
Maximum [Member] | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Expected volatility | 33.18% |
Risk-free interest rate | 1.60% |
Expected dividend yield | 5.76% |
Share-Based Compensation (Summary of Grants) (Details) - shares |
12 Months Ended | |
---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||
Three-year performance period ending December 31, | 2018 | 2017 |
Vesting shares, target (net of forfeited) | 83,250 | 85,750 |
Vesting shares, maximum (net of forfeited) | 156,094 | 160,781 |
Commitments and Contingencies (Narrative) (Details) - USD ($) $ in Millions |
1 Months Ended | 12 Months Ended | |||||
---|---|---|---|---|---|---|---|
Jan. 07, 2015 |
Mar. 31, 2015 |
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
Jun. 30, 2017 |
Nov. 17, 2016 |
|
Commitments and Contingencies Disclosure [Abstract] | |||||||
Deferred rent | $ 1.5 | $ 2.4 | |||||
Total rent expense | 14.7 | $ 19.7 | $ 16.0 | ||||
Exposure to earthquake loss | 66.2 | ||||||
Litigation settlement expense | $ 27.6 | ||||||
Payments for assessed penalty | $ 27.6 | ||||||
Penalty interest assessed, statutory rate | 7.00% | ||||||
Gain contingency, unrecorded amount | $ 31.1 | $ 30.9 |
Commitments and Contingencies (Future Minimum Commitments For Operating Leases) (Details) $ in Thousands |
Dec. 31, 2017
USD ($)
|
---|---|
Commitments and Contingencies Disclosure [Abstract] | |
2018 | $ 10,818 |
2019 | 8,024 |
2020 | 5,791 |
2021 | 3,855 |
2022 | 2,769 |
Thereafter | $ 673 |
Quarterly Financial Information (Unaudited) (Summary Of Quarterly Financial Information) (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 12 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2017 |
Sep. 30, 2017 |
Jun. 30, 2017 |
Mar. 31, 2017 |
Dec. 31, 2016 |
Sep. 30, 2016 |
Jun. 30, 2016 |
Mar. 31, 2016 |
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Quarterly Financial Data [Abstract] | |||||||||||
Net premiums earned | $ 806,796 | $ 801,205 | $ 797,666 | $ 789,770 | $ 794,517 | $ 790,850 | $ 779,321 | $ 767,085 | $ 3,195,437 | $ 3,131,773 | $ 2,957,897 |
Change in fair value of financial instruments pursuant to the fair value option | 28,065 | 17,608 | 20,275 | 21,857 | (67,332) | (21,132) | 37,127 | 18,531 | 87,927 | (32,805) | (61,731) |
Income before income taxes | 9,487 | 58,247 | 68,752 | 30,599 | (51,270) | 31,625 | 64,335 | 26,034 | 167,085 | 70,724 | 70,567 |
Net income | $ 19,779 | $ 46,485 | $ 51,633 | $ 26,980 | $ (26,082) | $ 26,930 | $ 48,873 | $ 23,323 | $ 144,877 | $ 73,044 | $ 74,479 |
Basic (in dollars per share) | $ 0.36 | $ 0.84 | $ 0.93 | $ 0.49 | $ (0.47) | $ 0.49 | $ 0.88 | $ 0.42 | $ 2.62 | $ 1.32 | $ 1.35 |
Diluted (in dollars per share) | 0.36 | 0.84 | 0.93 | 0.49 | (0.47) | 0.49 | 0.88 | 0.42 | 2.62 | 1.32 | $ 1.35 |
Dividends paid per share | $ 0.6250 | $ 0.6225 | $ 0.6225 | $ 0.6225 | $ 0.6225 | $ 0.6200 | $ 0.6200 | $ 0.6200 | $ 0.6250 | $ 0.6225 |
Quarterly Financial Information (Unaudited) (Narrative) (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Quarterly Financial Data [Abstract] | |||
Income tax expense (benefit) | $ (22,208) | $ 2,320 | $ 3,912 |
Acquisition (Details) - USD ($) $ in Millions |
12 Months Ended | |||
---|---|---|---|---|
Jan. 12, 2015 |
Jan. 02, 2015 |
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Subsequent Event [Line Items] | ||||
Escrow deposit recovery | $ 2 | $ 2 | ||
Workmen's Auto Insurance Company [Member] | ||||
Subsequent Event [Line Items] | ||||
Consideration paid in cash | $ 8 | |||
Amount held in escrow | $ 2 | |||
Term for escrow security payment | 3 years | |||
Capital contribution amount | $ 15 |
Segment Information - Summary of Operating Results by Segment (Details) $ in Thousands |
3 Months Ended | 12 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2017
USD ($)
State
|
Sep. 30, 2017
USD ($)
|
Jun. 30, 2017
USD ($)
|
Mar. 31, 2017
USD ($)
|
Dec. 31, 2016
USD ($)
|
Sep. 30, 2016
USD ($)
|
Jun. 30, 2016
USD ($)
|
Mar. 31, 2016
USD ($)
|
Dec. 31, 2017
USD ($)
State
Subsidiary
|
Dec. 31, 2016
USD ($)
|
Dec. 31, 2015
USD ($)
|
|
Segment Reporting [Abstract] | |||||||||||
Number of insurance companies | Subsidiary | 14 | ||||||||||
Number of states in which company operates | State | 11 | 11 | |||||||||
Segment Reporting Information [Line Items] | |||||||||||
Net premiums earned | $ 806,796 | $ 801,205 | $ 797,666 | $ 789,770 | $ 794,517 | $ 790,850 | $ 779,321 | $ 767,085 | $ 3,195,437 | $ 3,131,773 | $ 2,957,897 |
Losses and loss adjustment expenses | 2,444,884 | 2,355,138 | 2,145,495 | ||||||||
Underwriting expenses | 788,700 | 797,900 | 790,000 | ||||||||
Underwriting (loss) gain | (38,200) | (21,200) | 22,400 | ||||||||
Net investment income | 124,930 | 121,871 | 126,299 | ||||||||
Net realized investment gains (losses) | 83,650 | (34,255) | (83,807) | ||||||||
Other income | 11,945 | 8,294 | 8,911 | ||||||||
Interest expense | (15,168) | (3,962) | (3,168) | ||||||||
Pre-tax income | 9,487 | 58,247 | 68,752 | 30,599 | (51,270) | 31,625 | 64,335 | 26,034 | 167,085 | 70,724 | 70,567 |
Net income | $ 19,779 | $ 46,485 | $ 51,633 | $ 26,980 | $ (26,082) | $ 26,930 | $ 48,873 | $ 23,323 | 144,877 | 73,044 | 74,479 |
Property and Casualty Lines [Member] | |||||||||||
Segment Reporting Information [Line Items] | |||||||||||
Net premiums earned | 3,160,900 | 3,089,900 | 2,906,600 | ||||||||
Losses and loss adjustment expenses | 2,427,800 | 2,333,200 | 2,117,300 | ||||||||
Underwriting expenses | 773,100 | 780,400 | 770,000 | ||||||||
Underwriting (loss) gain | (40,000) | (23,700) | 19,300 | ||||||||
Other Segments [Member] | |||||||||||
Segment Reporting Information [Line Items] | |||||||||||
Net premiums earned | 34,500 | 41,900 | 51,300 | ||||||||
Losses and loss adjustment expenses | 17,100 | 21,900 | 28,200 | ||||||||
Underwriting expenses | 15,600 | 17,500 | 20,000 | ||||||||
Underwriting (loss) gain | $ 1,800 | $ 2,500 | $ 3,100 |
Condensed Financial Information of Registrant (Schedule Of Condensed Financial Information Of Registrant, Statements Of Operations) (Details) - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2017 |
Sep. 30, 2017 |
Jun. 30, 2017 |
Mar. 31, 2017 |
Dec. 31, 2016 |
Sep. 30, 2016 |
Jun. 30, 2016 |
Mar. 31, 2016 |
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Revenues: | |||||||||||
Net investment income | $ 124,930 | $ 121,871 | $ 126,299 | ||||||||
Net realized investment gains (losses) | 83,650 | (34,255) | (83,807) | ||||||||
Other | 11,945 | 8,294 | 8,911 | ||||||||
Total revenues | 3,415,962 | 3,227,683 | 3,009,300 | ||||||||
Expenses: | |||||||||||
Other operating expenses | 233,475 | 235,314 | 250,839 | ||||||||
Interest | 15,168 | 3,962 | 3,168 | ||||||||
Total expenses | 3,248,877 | 3,156,959 | 2,938,733 | ||||||||
Income before income taxes | $ 9,487 | $ 58,247 | $ 68,752 | $ 30,599 | $ (51,270) | $ 31,625 | $ 64,335 | $ 26,034 | 167,085 | 70,724 | 70,567 |
Income tax expense (benefit) | 22,208 | (2,320) | (3,912) | ||||||||
Net income | $ 19,779 | $ 46,485 | $ 51,633 | $ 26,980 | $ (26,082) | $ 26,930 | $ 48,873 | $ 23,323 | 144,877 | 73,044 | 74,479 |
Parent Company [Member] | |||||||||||
Revenues: | |||||||||||
Net investment income | 4,090 | 4,032 | 4,314 | ||||||||
Net realized investment gains (losses) | 19,279 | 6,062 | (7,026) | ||||||||
Other | 0 | 17 | 0 | ||||||||
Total revenues | 23,369 | 10,111 | (2,712) | ||||||||
Expenses: | |||||||||||
Other operating expenses | 1,918 | 2,673 | 7,526 | ||||||||
Interest | 14,856 | 2,690 | 2,127 | ||||||||
Total expenses | 16,774 | 5,363 | 9,653 | ||||||||
Income before income taxes | 6,595 | 4,748 | (12,365) | ||||||||
Income tax expense (benefit) | 1,572 | 8,514 | (4,708) | ||||||||
Income (loss) before equity in net income of subsidiaries | (5,023) | 3,766 | 7,657 | ||||||||
Equity in net income of subsidiaries | 139,854 | 76,810 | 82,136 | ||||||||
Net income | $ 144,877 | $ 73,044 | $ 74,479 |
Supplemental Reinsurance Premiums (Schedule of Property and Liability Insurance Earned Premiums) (Details) - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2017 |
Sep. 30, 2017 |
Jun. 30, 2017 |
Mar. 31, 2017 |
Dec. 31, 2016 |
Sep. 30, 2016 |
Jun. 30, 2016 |
Mar. 31, 2016 |
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Supplementary Insurance Information [Abstract] | |||||||||||
Direct amounts | $ 3,221,493 | $ 3,146,864 | $ 2,970,424 | ||||||||
Ceded to other companies | (26,881) | (15,846) | (12,964) | ||||||||
Assumed | 825 | 755 | 437 | ||||||||
Net amounts | $ 806,796 | $ 801,205 | $ 797,666 | $ 789,770 | $ 794,517 | $ 790,850 | $ 779,321 | $ 767,085 | $ 3,195,437 | $ 3,131,773 | $ 2,957,897 |
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